Empirical Tests of the Black-Scholes Option Pricing Formula

question 45

Multiple Choice

Empirical tests of the Black-Scholes option pricing formula

• A)shows that binomial option pricing is used widely in practice, especially by international banks in trading OTC options.
• B)works well for pricing American currency options that are at-the-money or out-of-the-money.
• C)does not do well in pricing in-the-money calls and puts.
• D)both b and c

Identify the assumptions not applicable to the M/M/1 model.

Calculate the average number of entities in the system under various waiting line models.

Compute service factors and utilization factors in finite and infinite population models.

Understand the impact of the service rate and arrival rate on system utilization and queue lengths.

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Definitions:

Net Income

A company's overall income following the subtraction of all costs, taxes, and expenses from its gross revenue.

Unit Sales Price

The amount charged to customers for a single unit of a product or service.

Fixed Costs

Costs that do not vary with the level of production or sales, including rent, salaries, and insurance premiums.

Variable Costs

Expenses that change in proportion to the amount of production or business operations.