Empirical Tests of the Black-Scholes Option Pricing Model

question 45

Multiple Choice

Empirical tests of the Black-Scholes option pricing model

• A) show that the model generates values fairly close to the prices at which options trade.
• B) show that the model tends to overvalue deep in the money calls and undervalue deep out of the money calls.
• C) indicate that the mispricing that does occur is due to the possible early exercise of American options on dividend-paying stocks.
• D) a and c.
• E) a,b,and c.

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Definitions:

Innovative

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Demand Elasticity

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Locking in Customers

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Exclusive Government Contract

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