Which of the following assumptions made in deriving the Black-Scholes formula are commonly violated in the real world?

Question

Quizplus · Accepted Answer

All of the assumptions made in deriving the Black-Scholes formula are commonly violated in the real world. Firstly, log-returns are not always normally distributed in the real world, which can lead to inaccurate pricing of options. Secondly, the assumption of constant volatility can be unrealistic as volatility can change over time. Finally, market gaps can occur, which means prices do not evolve continuously, making the model less accurate.

Which of the Following Assumptions Made in Deriving the Black-Scholes