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Explain Black–Scholes model

Explain Black–Scholes model.

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The Black-Scholes model is depends on geometric Brownian motion for asset price S as

dS = µSdt + σSdX.

The Black-Scholes partial differential equation for value V of an alternative is then

∂V/∂t + ½ σ2S2 (∂2V/∂S2) + rS (∂V/∂S) - rV = 0

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