**Definition:**The Black-Scholes equation is an equation for option securities prices on the basis of an assumed stochastic process for stock prices.

The Black-Scholes algorithm can produce an estimate the value of a call on a stock, using as input:

- an estimate of the risk-free interest rate now and in the near future
- current price of the stock
- exercise price of the option (strike price)
- expiration date of the option
- an estimate of the volatility of the stock's price

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