Black-Scholes-Merton model

FRM Part 1 Glossary

A closed-form European option-pricing model giving the call value as C = S·N(d1) − K·e^(−rT)·N(d2), assuming a lognormal underlying, constant volatility and rate, no dividends, and continuous frictionless trading; N(d2) is the risk-neutral probability of finishing in the money.

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