👉 Option math is a branch of finance that deals with the valuation and pricing of options, which are financial derivatives giving the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price within a specified time frame. It involves using mathematical models, primarily based on stochastic calculus and probability theory, to determine the fair value of options. The Black-Scholes model is a cornerstone in this field, providing a formula to estimate the theoretical price of European-style options by considering factors such as the underlying asset's current price, strike price, time to expiration, volatility, and risk-free interest rate. This math is crucial for traders and investors to make informed decisions about buying, selling, or hedging options.
