In the Black-Scholes Setting, the Prices of American Options

question 29

Multiple Choice

In the Black-Scholes setting, the prices of American options

• A) Cannot be determined because the model assumes away the human impatience that leads to early exercise of options.
• B) Cannot be determined because the model does not describe the intermediate stock prices that are required to decide on whether to exercise an option early.
• C) Cannot be determined because the model assumes a continuous-time process, whereas to determine early-exercise you need a discrete-time model.
• D) Cannot be determined in closed-form.

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