Derivation of the General Solution of the Black-Scholes Boundary-Value Problem

Abstract

There are infinitely many functions that satisfy the Black-Scholes partial differential equation and the terminal condition corresponding to the European call option. This means that the Black-Scholes formula, which led to the award of the 1997 Nobel Prize in Economic Sciences, is not the unique solution, as was once assumed. Consequently, it violates the law of one price, one of the fundamental laws of economics and finance. In this article, we present a rigorous derivation of these solutions to the Black-Scholes boundary value problem.