The arbitrage-free option-pricing models can incorporate different volatility assumptions along the yield curve.

Question

Quizplus · Accepted Answer

Arbitrage-free option-pricing models, such as the Black-Scholes model or the binomial models, can be adapted or extended to incorporate different volatility assumptions along the yield curve, allowing for a more accurate pricing of options by accounting for changes in volatility at different maturities.

The Arbitrage-Free Option-Pricing Models Can Incorporate Different Volatility Assumptions Along