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Black-Scholes fair value model

The original option pricing model, which holds that a stock and the CALL option on the stock are comparable investments and thus a risk less portfolio may be created by buying the stock and selling the option on the stock, as a hedge. The movement of the price of the stock is reflected by the movement of the price of the option, but not necessarily by the same amplitude. Therefore, it is necessary to hold only the amount of the stock necessary to duplicate the movement of the price of the option.

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