Which financial model is associated with the 1997 Nobel Prize in Economics?

The Black–Scholes model is associated with the 1997 Nobel Prize in Economics.

Myron Scholes and Robert C. Merton shared the 1997 prize for a new method to determine the value of derivatives. Their work built on the option-pricing framework developed with Fischer Black, who had died in 1995 and therefore could not receive the prize.

The model gives a mathematical way to estimate the theoretical price of certain financial options using variables such as the asset price, exercise price, time to expiration, interest rate, and volatility. It became foundational in modern financial economics.

A frequent misconception is that Black received the Nobel posthumously. Nobel prizes are not normally awarded posthumously, so Scholes and Merton were the laureates. The model also has limitations, including assumptions about volatility and market behavior.