chapter  36
Option pricing and the Black-Scholes model
Pages 10

Probably the most popular way of calculating the ‘fair price’ of an option is by means of the BlackScholes model. An intuitive feel for this model can be obtained by regarding it as equating the

price (premium) with the expected pay-off from an option. Expected pay-off is used in the sense of possible pay-off outcomes weighted by their probabilities of occurrence (i.e. statistical expectation).