Explanation:

Derivatives create an alternative product for investors seeking to benefit from changes in the market value of primary instruments. They are known as non- primary instruments. Call and put options, and futures are some of the derivatives that can be used to profit from primary instruments. Derivatives get their name because they are derived from the primary (underlying)asset.  Derivatives are generally more complex than primary instruments because of the pricing methodologies. Derivative products have values that are generated from the primary instrument. Options on stocks are some of the most common derivative products used by alternative investors. Black Scholes is the main methodology for calculating the price of derivative options on stocks. It determines the price of a derivative product by considering five input variables: the strike price offered by the option, the current stock price, the time to expiration of the option, the risk-free rate and volatility.