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:

Weak Axiom

A less stringent rule or principle that is accepted as valid, often used in economic theories to make assumptions about consumer behavior.

Revealed Preference

An economic concept suggesting that the choices consumers make reflect their preferences, assuming that their decisions will maximize their satisfaction.

Prices

The amount of money required to purchase goods or services, often determined by supply and demand dynamics.

Preferences

In economics, preferences refer to the ranking or order of different alternatives or goods based on their desirability by individuals or entities.