Option contracts are a type of financial derivative that allow investors to
hedge risk and speculate on the variation of an asset's future market price. In
short, an option has a particular payout that is based on the market price for
an asset on a given date in the future. In 1973, Black and Scholes proposed a
valuation model for options that essentially estimates the tail risk of the
asset price under the assumption that the price will fluctuate according to
geometric Brownian motion.