Question
The Black Scholes Options Pricing Model (BSOPM) is an accurate framework for estimating equilibrium, or theoretically correct prices for Call and Put options contracts for
The Black Scholes Options Pricing Model (BSOPM) is an accurate framework for estimating equilibrium, or theoretically correct prices for Call and Put options contracts for which of the following reasons?
Helpful Hint: Select the MOST correct or MOST representative answer from the choices listed.
Question 10 options:
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Stock prices [and price changes] are log-normally distributed.
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Since the BSOPM is a transformation of the Simple Options Pricing Model, this statement is not entirely correct with regards to being more accurate in calculating theoretically correct prices.
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Stock prices [and price changes] are log-normally distributed. Natural logarithmic calculations are based on the use of base "e" and since Black Scholes incorporates base "e" into its framework, it is able to accurately estimate equilibrium or theoretically correct market prices.
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Natural logarithmic calculations are based on the use of base "e" and since Black Scholes incorporates base "e" into its framework, it is able to accurately estimate equilibrium or correct market prices.
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Black Scholes is a non-linear based model that is able to take into account a greater or more realistic range of possible outcomes.
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Quantitative Analysis For Management
Authors: Barry Render, Ralph M. Stair, Michael E. Hanna, Trevor S. Hale
14th Edition
