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.

Question

Quizplus · Accepted Answer

The variance of returns of the underlying asset return is not directly observable and must be estimated, making it the exception among the inputs listed for the Black-Scholes option pricing model.

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