Illustrates Black–Scholes Equation with an example

Question

Illustrates Black–Scholes Equation with an example?

Answer 1

The basic equation is

∂V/∂t + ½ σ²S²/∂²V∂S²+ rS ∂V/∂S- rV = 0,

Here V(S, t) is the option value like a function of asset price S and time t. There have been many extensions to such model; several people call them 'improvements.' although these extensions are all trivial compared along with the breakthrough in modelling which was the original equation.