Cream in a cup of coffee...

Read this awesome concept the other day...Might be boring the ppl who get jitters from Finance!

All those who know Black Scholes Model for Option Pricing....would be able to appreciate this one very easily. The model was developed by the nodel laurates Black & Scholes and Merton, and according to them, the theory was derived from a concept in Physics!

The model can be understood from the way in which CREAM gets added to a CUP of COFFEE !! When one swirls a cup of coffee and adds cream to it, the cream doesnt touch the cup (or the edge of the coffee) till the swirling stops! This is the same as the price of the option doesnt merge with the spot price of the underlying stock till the delivery date! The price comes closer to the spot price as the delivery date nears (i.e. the last thursday of every month in India)!

Sometimes, Butterfly Effect can find positive correlation between any two things in the universe!!!