What is the theoretical value?

Sometimes it is referred to as a fair or hypothetical value, the theoretical value is the estimated price of the possibility. Prices of possibilities can have to do with the purchase, sale or combination of these two. In most cases, the theoretical value is calculated using a specific type of mathematical equation. Today, several such models are used.

One of the most popular models to estimate the price estimation is known as the Optic Black-Scholes Awards. This formula was first introduced in 1973 and was a spiritual child Fischer Black and Myron Scholes. He considered this concept very accurate, quickly gained attention and remains one of the most respected of all the formulas they commonly use.

The calculation of theoretical value is useful for investors in several ways. First, determining the hypothetical value for an option or option, due to the specific market conditions, can provide a look at whether the purchase or sale of security is a good idea.I rely on the quality of the prerequisites concerning market performance in general and especially on performance.

Second, the calculation of theoretical value allows the investor to engage in protruding performance based on several different scenarios. The Black-Scholes approach, as well as other patterns based on mathematically based on the theoretical value project, enable to include different numbers. By operating several projections, the investor can identify the most likely future situation that will relate, while still preparing for what would happen if one or more factors proved to be different.

Theoretical value is one of the most basic tools used in trading today. By comparing the estimated value with the current market price, it is possible to determine whether it is likely that the purchase or store at some future point. Brokers and investors commonly use the concept tEoretic values ​​before making any type of investment decision.