In the context of the BSM Call Formula, what do the variables 'So', 'X', 'r', and 'T' represent?

In the context of the Black-Scholes-Merton (BSM) Call Formula, the variables represent specific financial concepts essential for option pricing. The variable 'So' denotes the current stock price, which is the market price of the underlying asset at the time of option pricing. 'X' represents the strike price, the predetermined price at which the option can be exercised. 'r' stands for the risk-free interest rate, reflecting the return on a theoretically risk-free investment over the option's lifetime. Finally, 'T' indicates the time to expiration of the option, measuring how long until the option is no longer valid.

These definitions are critical to understanding how the BSM model calculates the theoretical value of a call option by taking into account these four components, which influence its price. Each variable directly affects the value of the call option, providing insights into potential profitability based on market conditions and timing.

The other options relate to terms that do not connect to the BSM Call Formula. While they may be relevant in other contexts, such as financial metrics or statistical analysis, they do not apply to the parameters used in the Black-Scholes-Merton model. Thus, understanding these specific definitions is key to applying the BSM formula effectively in financial risk management