ABSTRACT
The appeal of the Black-Scholes formula lies in the simple relation expressed between the price of the underlying asset and the price of options written on it. Another important feature of Black-Scholes is that it gives a dynarnicalrelation between the underlying instrument, the option value, and the h e d g e - r a t i o i n thecashmarket( A ) that can be used to offset the risk of the option. The formula is the basis for pricing and hedging a variety of financial derivatives.'
