Chartered Accountant
545 Points
Joined March 2011
@ Ritzz
The derivation of Black and Scholes option pricing model is beyond the scope of our CA Final Syllabus.It won the Nobel Prize in Economics by Fisher Black and Myron Scholes and Robert Merton (However Black died before he could receive it.)
It took 28 years to develop the model and to understand it, so that it is why you will not be able to get the logic or the derivation behind it, Just consider it as another option pricing model which gives you the fair option price that ought to be in the market and thus you can determine wether the option premium is over priced or under priced in the market and take an appropriate arbitrage strategy.