# Theory of Rational Option Pricing, Merton, 1973

## Theory of Rational Option Pricing and Black-Scholes Model

**Theory of Rational Option Pricing** is a paper by **Robert C. Merton**, where Merton examines the option pricing methodology introduced by Fischer Black and Myron Scholes inĀ The Pricing of Options and Corporate Liabilities (1973). Merton provides an **alternative derivation of the Black-Scholes formula** that is valid under weaker assumptions and therefore more useable than the original (it is now known as the Black-Scholes Equation). The paper also provides several extensions of the Black-Scholes option pricing theory.

**Theory of Rational Option Pricing** was first published in **The Bell Journal of Economics and Management Science**, Vol. 4, No. 1. (Spring, 1973), pp. 141-183.

## Theory of Rational Option Pricing PDF

- Boston University: http://polymer.bu.edu/hes/merton73py538.pdf
- JSTOR: http://www.jstor.org/stable/3003143

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