A Study of Black-Scholes-Merton Model

Abstract

This study introduces the Option Pricing Theory improved by Black, Scholes, and Merton, which is also known as the Black-Scholes-Merton model, in detail and investigates its derivation process and historical development process. Despite the content above, it also includes its characteristics and mechanism. The newest Option Pricing formula proposed by Black, Scholes, and Merton was derived from mathematical methods such as the stochastic integral equation and Ito theorem. This essay concludes that the Black Scholes Merton model paved the way for the development and innovation of the subject of Financial Mathematics, which was found by the person who first came up with the Option Pricing Theory, which also contributes to the investment field to reduce the risk.