Black's Model

Also called the “Black-76,” (no, not a cool car) Black’s Model is a revamped version of the Black-Scholes model, an options pricing model.

The Black-76 allowed for the valuing of future options, unlike the OG Black-Scholes model. Using Black’s model, financial institutions could find a price to buy or sell an option at any point in the future, without putting up any money in the present time (“what a great idea,” the financiers of the world said in 1976).

Like all models, Black’s model does have its assumptions, but these assumptions (like log-distributed prices) are pretty reasonable most of the time. You’ll find mutual funds, hedge funds, and global banks using some form of Black’s model to calculate interest rate derivatives, caps, and floors, among other things.