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In Bond WorldQuesiton is : Can I use Black-Schole 73 for equity to price a bond instead of using the formal Black76 to price a bond forward maturing the same time as the option?Can I treat bond price as if following geometric brownian motion and input the bond price and dividend/coupon yield to mimic. However, I don't know if it will suffer serious conceptual error since Black76, the formal bond option pricing formula, transforms the underlying bond price to forward and minus the PV of coupon paid discrete in the future. I have attached example of bond pricing with Black76 and B-S (73). Pls help us to examine the possible errors.If we treat the dividend discret in the Black-Schole 73, is that free of conceptual error and cure the empirical difference? At this point, can we go further to use Dupire/local volatility without conceptual errors assuming bond is following log-normal distribution in the short-run?I know there are a lot of yield-base model can be tried, but if I stick to the price-base log-normal world, i guess Dupire's local volatility for black76' is different from the local volatility for black-schole73'dandan

Black-76 and Black-Scholes are one and the sameIf u cant see that then u r v confused

In the BS world you work under the risk neutral measure i.e. you discount by the continuously compounded money market account, therefore the drift is r dt.In the Black universe you work under the forward measure, i.e. you discount by bond prices. If option expiry and bond maturity coincide then you are in the lucky position that your numéraire is 1. Therefore you build the expectation of an asset following a driftless geometric brownian motion and multiply it with today's zero bond price