When Black's Model Used to Value a European Option on the Spot

question 20

Multiple Choice

When Black's model used to value a European option on the spot price of an asset,which of the following is NOT true?

• A) It is necessary to know the futures or forward price for a contract maturing at the same time as the option
• B) It is not necessary to estimate income on the underlying asset
• C) It is not necessary to know the risk-free rate
• D) The underlying asset can be an investment or a consumption asset

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Definitions:

Cutoff

A predetermined point or limit beyond which something does not proceed or is not allowed.

Disengaged

lacking interest, involvement, or commitment; often used to describe students or employees who are not actively participating.

Rituals

Formalized actions performed in a customary way, often with symbolic meaning, such as religious ceremonies or family traditions.

Homeostasis

A state of equilibrium, balance, or lack of conflict.