What Happens When the Volatility Is Zero in the Black-Scholes-Merton

question 34

Multiple Choice

What happens when the volatility is zero in the Black-Scholes-Merton model?

• A)the option price converges to either zero or the lower bound
• B)the option price converges to the intrinsic value
• C)the option automatically expires out of the money
• D)the gamma and delta converge
• E)none of the above

---

Definitions:

Superior

In economics, refers to a good for which demand increases as consumer incomes increase, opposite of an inferior good.

Player

An individual, group, or entity participating in a competitive or cooperative activity, often used in the context of games, sports, or market participants.

Negative-sum Games

Situations in which the total losses exceed the total gains, leading to a net decrease in wealth or benefit.

Incentive

A thing that motivates or encourages someone to do something, particularly in economic contexts to influence behaviors.