Which of the following values can not be obtained by applying the Black-Scholes formula and/or the put-call parity model?

Question

Quizplus · Accepted Answer

The Black-Scholes formula assumes that options are European style, meaning they can only be exercised at expiration. Therefore, the value of an American put (which can be exercised at any time prior to expiration) cannot be obtained solely through the Black-Scholes formula. However, the put-call parity model can be used to infer the theoretical value of an American put based on the value of an American call with the same underlying asset, strike price, and expiration date. The Black-Scholes formula and put-call parity model can be used to obtain the values of European call and put options, as well as American call options on non-dividend paying stocks (by using the early exercise feature). However, the model cannot be used to obtain the value of an American put option, as the early exercise feature of an American put option is not as straightforward as it is for an American call option. Therefore, choice B is the correct answer.

Which of the Following Values Can Not Be Obtained by Applying