The Black-Scholes OPM is dependent on which five parameters?
A) Stock price, exercise price, risk free rate, beta, and time to maturity
B) Stock price, risk free rate, beta, time to maturity, and variance
C) Stock price, risk free rate, probability, variance and exercise price
D) Stock price, exercise price, risk free rate, variance and time to maturity

Question

Quizplus · Accepted Answer

According to the Black-Scholes option pricing model, the option price is dependent on the stock price, exercise price, risk-free rate, volatility/variance, and time to maturity. Therefore, option prices can be determined by using these five parameters with the help of the Black-Scholes formula. Hence, option prices are determined based on the current stock price, exercise price, interest rate, time to expiration, and expected volatility or variance. Thus, choice D is the correct answer.

The Black-Scholes OPM Is Dependent on Which Five Parameters