Which formula represents the BSM Call Pricing Model?

The Black-Scholes-Merton (BSM) Call Pricing Model is a fundamental formula used in financial derivatives to calculate the theoretical price of European call options. The correct formula captures the essence of option pricing by integrating key variables such as the current stock price, the strike price, time to expiration, risk-free interest rate, and the volatility of the underlying asset.

The BSM Call Pricing Model is structured as follows: the price of a call option is derived by taking the present value of the expected payoff of the option at expiration. This is represented as the current stock price multiplied by the cumulative distribution function of the standard normal distribution at ( d1 ), minus the present value of the strike price adjusted by the risk-free rate, which is then multiplied by the cumulative distribution function at ( d2 ). The terms ( N(d1) ) and ( N(d2) ) reflect the probabilities of the option finishing in-the-money under the risk-neutral measure.

This precise formulation allows traders and risk managers to estimate what the option should be worth based on various market conditions and assumptions, thereby helping in making informed decisions.

In contrast, the other choices are unrelated to the BSM Call Pricing Model: the second choice refers to insurance ratios,