All the inputs in the Black-Scholes Option Pricing Model are directly observable except
A) the price of the underlying security.
B) the risk free rate of interest.
C) the time to expiration.
D) the variance of returns of the underlying asset return.
E) none of these.

Question

Quizplus · Accepted Answer

The variance of returns of the underlying asset return is not directly observable and must be estimated using historical data or implied volatility from options prices.

All the Inputs in the Black-Scholes Option Pricing Model Are