The Merton (1976)model

question 15

Multiple Choice

The Merton (1976) model

• A)Modifies the Black-Scholes model by replacing geometric Brownian motion with a Poisson-driven jump process.
• B)Modifies the Black-Scholes model by adding a Poisson-driven jump process as a second source of noise in addition to geometric Brownian motion.
• C)Modifies the Black-Scholes model by allowing for jumps at specified points in time to account for dividend payments.
• D)Replaces the Black-Scholes model's geometric Brownian motion assumption (i.e. ,lognormal returns)with a Poisson-augmented arithmetic Brownian motion process (i.e. ,normal returns).

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