The Merton (1976) Model

The Merton (1976) model

A) Modifies the Black-Scholes model by replacing geometric Brownian motion with a Poisson-driven jump process.
B) Modifies the Black-Scholes model by adding a Poisson-driven jump process as a second source of noise in addition to geometric Brownian motion.
C) Modifies the Black-Scholes model by allowing for jumps at specified points in time to account for dividend payments.
D) Replaces the Black-Scholes model's geometric Brownian motion assumption (i.e., lognormal returns) with a Poisson-augmented arithmetic Brownian motion process (i.e., normal returns) .