# What is the Black-Scholes Options Pricing Model?

The Black-Scholes pricing model is a popular option pricing technique that uses a mathematical formula to determine the fair market value of an option.

The Black-Scholes Pricing Model is an essential tool for financial professionals, providing a valuable approach to pricing options and other derivatives. Developed in 1973 by Nobel Prize-winning economists Fisher Black and Myron Scholes, the Black-Scholes pricing model helps traders and investors calculate the fair market value of their options.

A trader interest the following five key variables into the model:

- the current stock price
- the options strike price
- the time to expiration
- the volatility of the underlying asset
- and the current risk-free rate

Once these variables are entered, the model returns a fair value for the given contract. The Black-Scholes pricing model can help you make informed decisions when trading options. This model incorporates the five key variables mentioned earlier, which allows traders and investors to estimate the appropriate option premium for any given option.

By using the Black-Scholes pricing model, traders can determine the theoretical price of an option, and then adjust the premium accordingly. The Black-Scholes pricing model is a valuable tool for both new and experienced traders. It helps traders to better understand the relationship between the option's variables and the option's price.