Black model
The Black model (sometimes known as the Black-76 model) is a variant (and more general form) of the Black-Scholes option pricing model. It is widely used in the futures market and interest rate market for pricing options. It was first presented in a paper written by Fischer Black in 1976.
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2 Derivation and assumptions 3 See also 4 External links 5 References |
The Black formula
The Black formula for a call option on an underlying struck at K, expiring T years in the future is
where
The put price isDerivation and assumptions
The derivation of the pricing formulas in the model follows that of the Black-Scholes model almost exactly. The assumption that the spot price follows a log-normal process is replaced by the assumption that the forward price follows such a process. From there the derivation is identical and so the final formula is the same except that the spot price is replaced by the forward - the forward price represents the expected future value discounted at the risk free rate.See also
External links
References
