Which of the Following Was NOT a Key Insight That

question 8

Multiple Choice

Which of the following was NOT a key insight that helped Fischer Black,Myron Scholes,and Robert Merton formulate their 1973 option pricing model?

• A) adjustment for known dollar dividends
• B) the lognormal distribution for stock prices
• C) the no-arbitrage principle
• D) hedging an option with a stock and the creation of a "perfect hedge"
• E) the focus on a stock's price return's volatility as opposed to measuring a risk-premium

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Definitions:

Disutility

The dissatisfaction or unhappiness experienced by a consumer due to the consumption of a good or service, or from engaging in an activity.

Fine

A monetary penalty imposed by an authority on individuals or organizations for violations of legal rules.

Endowment Effect

The phenomenon where individuals value an owned item more than a similar item they do not own.

Gains

An increase in wealth, utility, or value resulting from an economic transaction or activity.