The Black-Scholes model is based on several restrictive assumptions, including:

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The Black-Scholes model, used for pricing European call and put options, assumes constant variance of the stock price, continuous and smooth stock prices, zero taxes and transaction costs, and equal borrowing and lending rates, among other assumptions. These simplifications facilitate mathematical modeling but limit the model's applicability to real-world scenarios.

The Black-Scholes Model Is Based on Several Restrictive Assumptions, Including