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8.2 The price of an option: 1 Black Scholes Model

As mentioned before,  option trading in the US began for the first time in 1973. For the first time options contracts were properly standardized and there was a fair marketplace for them to be traded. The Options Clearing Corporation was established for centralized clearing of the contracts and ensuring proper fulfillment of the contracts. Many concerns of investors were removed as option trading was finally legitimate.

We will talk about Black and Scholes model, the impact of interest, dividend, the underlying value, and the duration of the option.