The Implied Standard Deviation Used in the Black-Scholes Option Pricing

question 10

Multiple Choice

The implied standard deviation used in the Black-Scholes option pricing model is:

• A) based on historical performance.
• B) a prediction of the volatility of the return on the underlying asset over the life of the option.
• C) a measure of the time decay of an option.
• D) an estimate of the future value of an option given a strike price e.
• E) a measure of the historical intrinsic value of an option.

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Definitions:

Fiscal Quarter

A three-month period within a fiscal year used for financial reporting and forecasting.

Forecast Profit

An estimate of future financial gain or income, usually based on analysis of current and past trends.

Mortality Rate

A measure of the number of deaths in a particular population, scaled to the size of that population, per unit of time.

Population

The total number of people or inhabitants in a particular area or group.