Important Assumptions Justifying the Black-Scholes Formula Include the Following

question 44

Multiple Choice

Important assumptions justifying the Black-Scholes formula include the following:

• A)The price of the underlying asset follows a lognormal random walk.
• B)The price of the underlying asset follows a lognormal random walk and investors can adjust their hedge ratio continuously and at no cost.
• C)The price of the underlying asset follows a lognormal random walk, investors can adjust their hedge ratio continuously and at no cost, the risk-free rate is known, and the underlying asset does not pay dividends.
• D)The risk-free rate is known and the underlying asset does not pay dividends.

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