Option Pricing Models

Option pricing model is a mathematical model to calculate option prices and Greeks from inputs such as underlying price, option strike price, time to expiration, volatility, interest rate, and underlying asset yield.

Like other financial models, option pricing models always make a number of assumptions and use a simplified version of reality, which can have serious consequences for their use in the real world.

Best known option pricing models include Black-Scholes and binomial models.

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