Question 1. " The Black-Scholes and Merton method of modelling derivatives prices was first introduced in 1973, by the Nobel Prize winners Black, Scholes (1973) and Merton (1973), after which the model is named. Essentially, the Black-Scholes-Merton (BSM) approach shows how the price of an option contract can be determined by using a simple formula of the underlying assets price and its volatility, the exercise price price of the underlying asset that the contract stipulates time to maturity of the contract and the risk-free interest rate prevailed in the market".

(i) Critically assess the merits and shortcomings of the Black Scholes Pricing Model on the Stock Exchange of Mauritius. (15 Marks)

(ii) Discuss the other relevant alternatives of the BSM approach on the Stock Market of Mauritius. (10 marks)