The standard Black-Scholes option pricing model applies to:
A)European call options on non-dividend paying stocks.
B)American call options on non-dividend paying stocks.
C)European call options on all stocks.
D)American call options on all stocks.

Question

Quizplus · Accepted Answer

The Black-Scholes option pricing model is based on various assumptions, including that the option is European (which means it can only be exercised at expiration), the underlying stock does not pay dividends, and there are no transaction costs or taxes. Therefore, the model is best suited for pricing European call options on non-dividend paying stocks. It may not be as accurate for American options, which can be exercised at any time prior to expiration, and for stocks that pay dividends.

The Standard Black-Scholes Option Pricing Model Applies To