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How many terms are in Black–Scholes equation contained

How many terms are in Black–Scholes equation contained?

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The equation contains four terms:

  • ∂V/∂t = time decay, it how much the option value changes by when the stock price does not change
  • ½ σ2S2(∂2V/∂S2) = convexity term, that is, how much a hedged position makes upon average by stock moves
  • rS(∂V/∂S) = drift term allowing for the growth in the stock at the risk-free rate and
  • -rV = the discounting term, because the payoff is received on expiration, if you are valuing the option now.

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