How Does the Black-Scholes Model Incorporate Theta? ⎊ Path

How Does the Black-Scholes Model Incorporate Theta?

The Black-Scholes model, a theoretical options pricing model, includes a time variable (T) which represents the time to expiration. Theta is mathematically derived from the Black-Scholes formula as the partial derivative of the option price with respect to time.

The model shows that as T approaches zero, the option price approaches its intrinsic value, reflecting the effect of Theta decay.

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Glossar

The Black-Scholes Model

Foundation ⎊ The Black-Scholes model serves as the cornerstone for modern options pricing theory, providing a continuous-time framework for calculating the fair value of derivatives.

Black-Scholes Formula

Formula ⎊ The Black-Scholes Formula, a cornerstone of options pricing theory, provides a theoretical fair value for European-style options, frequently adapted for cryptocurrency derivatives.