The Black-Scholes option pricing model The Black-Scholes option pricing model (OPM) was developed in 1973. The creation of the Black-Scholes OPM played a significant role in the rapid growth of options trading. The Black-Scholes model is based on the concept of a riskless hedge. An investor can create a riskless hedge by purchasing shares of stock and simultaneously selling call options on that stock. According to the Black-Scholes Option Pricing Model, if the exercise price, X, increases, the value of the call option increases Big Walnut Nut Company has a current stock price of $28.00. A call option on this stock has an exercise price of $28.00 and 0.25 year to maturity. The variance of the stock price is 0.09, and the risk-free rate is 6%. You calculate d_1 to be 0.18 and N(0.18) to be 0.5714. Therefore, d_2 will be 0.03 and N(0.03) will be 0.5120. Using the Black-Scholes Option Pricing Model, what is the value of the option? (Use 2.7183 as the approximate value of e.) $1,502 $1,877 $1,783 $1,595