One of the Foundations of the Black Scholes Option Pricing

question 4

Multiple Choice

One of the foundations of the Black Scholes Option Pricing Model was that the shares of stock and call option combined to form

• A)A riskless hedge that,by definition,had to duplicate the return of a discount bond with the same maturity length as the option
• B)A hedge that by definition had the same risk as a 1 year U.S.Treasury bill
• C)A hedge that by definition had to equal the risk of the underlying common stock on which the option was priced
• D)None of the above are true

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Definitions:

Limbic System

In humans, functional association of various brain centers, including the amygdala and hippocampus; governs learning and memory and various emotions such as pleasure, fear, and happiness.

Pons

Portion of the brain stem above the medulla oblongata and below the midbrain; assists the medulla oblongata in regulating the breathing rate.

Medulla

An inner region or core in various structures, often used to refer to the medulla oblongata, a part of the brainstem that controls vital functions.

Brain Stem

In mammals, portion of the brain consisting of the medulla oblongata, pons, and midbrain.