Which of the Following Is Not an Assumption Underlying the Black-Scholes

question 43

Multiple Choice

Which of the following is not an assumption underlying the Black-Scholes option-pricing model?

• A) The risk-free rate is known and constant over the life of the option.
• B) The probability distribution of stock prices is lognormal.
• C) The world is risk-neutral.
• D) The variability of a stock's return is constant.
• E) There are no transaction costs involved in trading options.

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Definitions:

Peanut Butter

A food paste or spread made from ground dry roasted peanuts.

Explanandum

The phenomenon or event that is being explained in a scientific inquiry.

Hypotheses

Tentative explanations or suppositions made based on limited evidence as a starting point for further investigation.

Arguments

A series of statements typically used to persuade someone of something or to present reasons for accepting a conclusion.