Which of the inputs in the Black-Scholes option pricing model are directly observable?
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) The price of the underlying security, risk-free rate of interest, and time to expiration

Question

Quizplus · Accepted Answer

The price of the underlying security, risk-free rate of interest, and time to expiration are directly observable in the market. The variance of returns (volatility) is not directly observable and must be estimated.

Which of the Inputs in the Black-Scholes Option Pricing Model