Option pricing techniques have reached a level of sophistication that
transformed the option trading market into the hugely lucrative industry that it
is today. Yet, they are among the most mathematically complex of all applied
areas of finance. To find the fair value for an option, is of course the goal of
option pricing techniques.
The derivation of the formulas that formed the basis for modern option
pricing techniques and demonstrated revolutionary utility in determining what an
option is worth at any given time, was the ground-breaking work of Myron
Scholes, Robert Merton, and the late Fischer Black. In 1997, Robert Merton from
Harvard University and Myron Scholes, a professor of finance (emeritus) from
Stanford University, were awarded the Nobel Prize in economics for their work in
developing and extending the Black-Scholes formula.
Financial analysts can now accurately calculate what value to put on a
financial derivative, such as a stock option, due to the important work which
won these men the Nobel Prize.
