Black Scholes Equation

[courtrigrad]

Can someone explain the Black Scholes Equation in simple english? What is it used for?

Thanks

[Ivan Seeking]

Well, I tried but I don't know if it can be put into simple English. :yuck:
As nearly as I can tell, this is used to estimate the implicit value of certain stocks, including the effects of market volatility, as opposed to the market value at any time which may not be representative of the long term value of that stock. In other words, and I want to stress that I'm struggling here, it seeks to factor out market fluctuations which are not representative of the actual value of a stock.

The Black-Scholes model, often simply called Black-Scholes, is a model of the varying price over time of financial instruments, and in particular stocks. The Black-Scholes formula is a mathematical formula for the theoretical value of European put and call stock options that may be derived from the assumptions of the model. The equation was derived by Fisher Black and Myron Scholes; the paper that contains the result was published in 1973. They built on earlier research by Paul Samuelson and Robert Merton. The fundamental insight of Black and Scholes was that the call option is implicitly priced if the stock is traded. The use of the Black-Scholes model and formula is pervasive in financial markets. [continued]
http://en.wikipedia.org/wiki/Black-Scholes