1997's Nobel Economics Prize was awarded to Robert Merton and Myron Scholes for their distinguished contribution to option pricing theory．Option pricing theory is closely related to practical operations in financial markets and has significant impact on the development of western financial markets．Black and Scholes published the first option pricing model in 1973，Merton and other researchers continuedtheir work，further developed the model，gaining in the process more perfection and wider application for the theory．These theoretical results have been directly applied to business and stimulated the rapid growth of derivative trades．Options are very complicated types of derivatires，they are contingent claims in future．Their valuation and pricing are complex and difficult．The no—arbitrage hedging position should be adjusted continuously and described using stochastic differential equation．This article illustrates the fundamental option pricing theory and discusses its extension and significance in both academic and business fields