A valuation model which is used to price financial options under a number of simplistic assumptions, including specifically that the behavior of heavily traded stocks is characterized by geometric Brownian motion. This price change is assumed to have a constant drift and volatility. For example, in pricing call and put options, the model’s main inputs are: current stock price, time value of money, the option’s exercise price and time to expiration, among others. The model was developed by Fischer Black and Myron Scholes in their 1973 paper: “The Pricing of Options and Corporate Liabilities”.

For more, see tutorial: Black-Scholes model.