Black model

The Black model (also known as the Black-76 model) is a variant of the Black–Scholes option pricing model. Its primary applications are for pricing options on future contracts, bond options, interest rate cap and floors, and swaptions. It was first presented in a paper written by Fischer Black in 1976.

It assumes that the relevant forward or futures price follows a log-normal distribution under a risk-neutral pricing measure and that the option payoff is discounted at a constant risk-free interest rate. In its standard form the model is used to price European call and put options on commodity futures, bond options, and interest rate caps and floors and swaptions.

This article is issued from Wikipedia. The text is available under Creative Commons Attribution-Share Alike 4.0 unless otherwise noted. Additional terms may apply for the media files.