Empirical tests of the Black-Scholes option pricing formula
A)shows that binomial option pricing is used widely in practice,especially by international banks in trading OTC options.
B)works well for pricing American currency options that are at-the-money or out-of-the-money.
C)does not do well in pricing in-the-money calls and puts.
D)works well for pricing American currency options that are at-the-money or out-of-the-money,but does not do well in pricing in-the-money calls and puts.

Question

Quizplus · Accepted Answer

Empirical tests have shown that the Black-Scholes option pricing formula works well for pricing American currency options that are at-the-money or out-of-the-money. However, it does not do well in pricing in-the-money calls and puts. In practice, binomial option pricing is also widely used, especially by international banks in trading OTC options.

Empirical Tests of the Black-Scholes Option Pricing Formula