Which of the Following Is  NOT  an Assumption Underlying the Black-Scholes

question 49

Multiple Choice

Which of the following is  NOT  an assumption underlying the Black-Scholes option-pricing model?

• A)The risk-free rate is known and constant over the life of the option.
• B)The probability distribution of stock prices is lognormal.
• C)Investors are risk averse and will always choose the option that involves the least risk.
• D)The variability of a stock's return is constant.
• E)There are no transaction costs involved in trading options.

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Definitions:

Locus of Control

A psychological concept referring to an individual's belief about how much control they have over the outcomes of events in their lives, ranging from internal (a belief in personal control) to external (a belief that outside forces dominate).

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A condition where an individual is in good health, acknowledges personal capabilities, handles life's usual stresses well, contributes positively to work, and actively supports the community.

Five-Factor Model

A theory that describes human personality through five broad dimensions: openness, conscientiousness, extraversion, agreeableness, and neuroticism.

Openness to Experience

A personality trait that features characteristics such as imagination, insight, and a broad range of interests.