The Black and Scholes Option Pricing Model Makes an Assumption

question 5

True/False

The Black and Scholes option pricing model makes an assumption that the stock pays dividends during the time the option is outstanding.

---

Definitions:

Exponential Distribution

A probability distribution used to model the time between events in a Poisson process, characterized by a constant rate parameter.

Probability

Probability is a measure of the likelihood that an event will occur, expressed as a number between 0 and 1, where 0 indicates impossibility and 1 indicates certainty.

Student T Random Variable

A variable that follows the Student's t-distribution, often used in the context of small sample sizes when the population variance is unknown.

Variance

The average of the squared differences from the mean, showing the spread between numbers in a data set.