Reading 60: Option Markets and Contracts-LOS c 习题精选

label, style, center, following, 2010

Session 17: Derivative Investments: Options, Swaps, and Interest Rate and Credit Derivatives
Reading 60: Option Markets and Contracts

LOS c: Explain the assumptions underlying the Black-Scholes-Merton model and their limitations.

Which of the following is NOT one of the assumptions of the Black-Scholes-Merton option-pricing model?

A)	There are no taxes and transactions costs are zero for options and arbitrage portfolios.

B)	The yield curve for risk-free assets is fixed over the term of the option.

C)	There are no cash flows over the term of the options.

The yield curve is assumed to be flat so that the risk-free rate of interest is known and constant over the term of the option. Having a fixed yield curve does not necessarily imply that the yield curve is flat.

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发表于 2010-4-22 10:47 | 只看该作者

Which of the following is least likely one of the assumptions of the Black-Scholes-Merton option pricing model?

A)	Changes in volatility are known and predictable.

B)	There are no cash flows on the underlying asset.

C)	The risk-free rate of interest is known and does not change over the term of the option.

The BSM model assumes that volatility is known and constant. The term predictable would allow for non-constant changes in volatility.

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3^#

发表于 2010-4-22 10:47 | 只看该作者

Which of the following is NOT one of the assumptions of the Black-Scholes-Merton (BSM) option-pricing model?

A)	Any dividends are paid at a continuously compounded rate.

B)	There are no taxes.

C)	Options valued are European style.

The BSM model assumes there are no cash flows on the underlying asset.

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Reading 60: Option Markets and Contracts-LOS c 习题精选

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