The Fundamental Asset Pricing Partial Differential Equation (PDE)is Used to Derive

question 3

Multiple Choice

The fundamental asset pricing partial differential equation (PDE) is used to derive the Black-Scholes formula.Which of the following statements is not true about the fundamental PDE?

• A)The PDE depends on the growth rate of the stock.
• B)The PDE is independent of the the utility function of the investor buying the option.
• C)The PDE is the same for both calls and puts,the only difference being in the boundary conditions.
• D)The solution to the PDE is the Black-Scholes option pricing formula.

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Definitions:

Commission

A fee paid for provided services, typically a percentage of the transaction value, often used in sales, brokerage, and real estate transactions.

Principals

Refers to the original sum of money borrowed in a loan, or put into an investment.

Gross Cost

Gross cost refers to the total cost of a product or service before any deductions, such as discounts or rebates, are applied.

Commission

A fee paid to an agent or employee for conducting a transaction or service, usually a percentage of the sale price.