What Are the Variables in the Black-Scholes Option Pricing Model

question 20

Essay

What are the variables in the Black-Scholes option pricing model? How is each related to the price of the call option?

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Definitions:

Operating Leverage

A measure of how revenue growth translates into growth in operating income, determined by the proportion of fixed versus variable costs a company has.

Contribution Margin

The difference between sales revenue and variable costs, indicating how much contributes towards covering fixed costs and generating profit.

Income from Operations

The earnings generated from a company's core business operations before subtracting interest and taxes.

Profit-Volume Chart

A graphical representation that shows the relationship between a company's profits and its level of output or sales volume.