Appropriateness of the classical black-scholes method in option price calculation

Abstract

Financial mathematics provides tools for the constructions in financial modeling. Various Financial Mathematical models have been developed for the description of financial derivatives for past few decades. An option is a contract that gives the purchaser the right to buy or sell a specified financial product of an underlying asset at a fixed price on a specified future date. There is no obligation to exercise the option. Two main types of options, namely, American and European options are widely used in today�s world. European option may be exercised only at the expiration date of the option while the American option may be exercised at any time before the expiration date.