Identify the Five Factors of the Black-Scholes Option Pricing Model

question 23

Essay

Identify the five factors of the Black-Scholes option pricing model and identify whether each factor must increase or decrease to cause the price of a put option to increase.

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Definitions:

Short-run Market Supply

The total quantity of a good that producers are willing and able to sell at a given price over a short period.

Marginal Cost Curves

graphical representations that show how the cost of producing one additional unit of a good or service varies with the quantity produced.

Price Taker

A price taker is a firm or individual who has no power to influence the prices in a market, taking the prevailing prices as given.

Short-Run Supply Curve

A graphical representation showing the quantity of goods a firm is willing to produce and sell at different price levels in the short term.