The Black-Scholes Formula Is Based on

question 27

Multiple Choice

The Black-Scholes formula is based on

• A) A field of mathematics known as Brownian geometry.
• B) An assumption that stock prices are distributed normally.
• C) An assumption that continuously-compounded stock returns are distributed normally.
• D) A geometric process that allows for both positive and negative stock prices.

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Definitions:

Debit

A debit is an accounting entry that results in either an increase in assets or expenses or a decrease in liabilities or equity on a company's balance sheet.

Owner's Equity

The residual interest in the assets of the entity after deducting liabilities, representing the owner's claim on the business assets.

Expenses

Costs incurred in the process of earning revenue, including operational costs like rent, utilities, and payroll.

Withdrawals

Refers to the act of taking money out of a bank account or the removal of funds from a business by its owner for personal use.