If We Use the Black-Scholes Model for Bond Options, Then

question 4

Multiple Choice

If we use the Black-Scholes model for bond options, then we assume that bond prices are lognormal, as the underlying asset in the Black-Scholes model is assumed to have a lognormal distribution. Which of the following is not a consequence of this assumption?

• A) Bond prices are non-negative.
• B) Interest rates are non-negative.
• C) Bond prices are positively skewed.
• D) Interest rates are not skewed.

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