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Black朣choles Model The Black–Scholes model was the first, and is the most widely used model for pricing options. The model and associated call and put option formulas have revolutionized finance theory and practice, and the surviving inventors Merton and Scholes received the Nobel Prize in Economics in 1997 for their contributions. Black andScholes [4]and Merton [16] introduced the key concept of dynamic hedging whereby the option payoff is replicated by a trading strategy in the underlying asset. They derive their formula under log-normal dynamics for the asset price, allowing an explicit formula for the price of European call and put options. Remarkably their formula (and its variants) have Remained the industry standard inequity and currency marketsfor thelast 30 years.Despite the assumptions Underpinning the formula being some what unrealistic, options prices computed with the formula are reason-ably close to those of options traded on exchanges. To some extent, the agreement in prices may simply reflect the fact that the Black–Scholes model is so popular. Mathematics in modern finance can be dated back to Bachelier’s dissertation [1] on the theory of speculation in 1900. Ito and Samuelson were influenced by Bachelier’s pioneering work. The idea of hedging using the underlying asset via a ratio of asset to options was recorded in [23] and Thorp used this to invest in the late 1960s. Black and Scholes [4] used the equilibrium Capital Asset Pricing Model (CAPM) to derive an equation for the option price and had the insight that they could assume for valuation purposes the option expected return equal to the riskless rate. This meant their equation could be solved to give the Black–Scholes formula. Merton [16] showed how the model could be derived without using CAPM by dynamic hedging, and this solution was also in the Black–Scholes paper. Merton’s paper constructed a general theory of option pricing based on no arbitrage and Ito calculus. The Chicago Board Optio