Which of the Following Statements Is INCORRECT About Asset Price

question 18

Multiple Choice

Which of the following statements is INCORRECT about asset price bubbles?

• A) A price bubble happens when an asset's price substantially deviates from its intrinsic or fundamental value.
• B) A price bubble implies the existence of arbitrage and they are excluded by the no arbitrage assumption.
• C) Price bubbles cannot be accommodated in the Black-Scholes-Merton model because the assumption that the stock price follows a lognormal distribution excludes bubbles.
• D) A price bubble can happen when the assumption "competitive and well-functioning market" fails to hold.
• E) In the presence of price bubbles,many of the standard results of option pricing are no longer valid.

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