Black-Scholes model developed in 1973 has become one of the important concepts in modern financial theory. This model is regarded as one of the best ways in determining fair prices of the options. Many studies have been done to improve the performance of the Black-Scholes model since this model is built with few limitations. Thus, the objective of this review paper is to discuss on the Black-Scholes model. The aim of this review paper is to present the derivation of Black-Scholes, Merton and KMV-Merton models. Besides, it provides a literature review on the modifications done by the researchers on the Black-Scholes model.

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