Chapter 15 The Black–Scholes–Merton Model
In the early 1970s, Fischer Black, Myron Scholes, and Robert Merton achieved a major breakthrough in the pricing of European stock options.1 This was the development of what has become known as the Black–Scholes–Merton (or Black–Scholes) model. The model has had a huge influence on the way that traders price and hedge derivatives. In 1997, the importance of the model was recognized when Robert Merton and Myron Scholes were awarded the Nobel prize for economics. Sadly, Fischer Black died in 1995; otherwise he too would undoubtedly have been one of the recipients of this prize.
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