The Black Scholes model, is a mathematical model of price variation over time of financial instruments like stocks and ETFs that can be used to determine the price of an option.

The Black Scholes Model formula is the first widely accepted model for option pricing. It’s used to calculate the theoretical value of options using current stock prices, expected dividends, the option’s strike price, expected interest rates, time to expiration and expected volatility.

The Black-Scholes Model was first published in the Journal of Political Economy under the title “The Pricing of Options and Corporate Liabilities” by Fischer Black and Myron Scholes and later expanded upon in “Theory of Rational Option Pricing” by Robert Merton in 1973.