Quiz Ch 21 – Key Assumptions Supporting the Black-Scholes Formula
Principles of Corporate Finance
Brealey, Myers, and Allen
13th Edition
What are the essential assumptions that justify the Black-Scholes formula?
What are the essential assumptions that justify the Black-Scholes formula?
What are the reasons for the inadequacy of the discounted cash-flow approach in valuing options?
How is the option delta depicted in the Black-Scholes formula?
What are the five parameters the Black-Scholes option pricing model utilizes?
What is the range of values that N(d), used in the Black-Scholes model, can take?
What is the expression for the quantity (1 + downside change) if u represents (1 + upside change)?
True or false: Uncovering the beta of a call option entails computing the portfolio beta involving the replicating stock and risk-free loan.
True or false: The binomial model approaches the price of the Black-Scholes model as the periods decrease in size.
True or false: An escalation in the risk-free interest rate correlates with a rise in the value of a call option.
True or false: The outcome gradually converges towards the Black-Scholes model with an augmentation in the time per interval in a binomial model.