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)A,B,and C

Question

Quizplus · Accepted Answer

The price of the underlying security, the risk-free rate of interest, and the time to expiration are all directly observable inputs in the Black-Scholes Option Pricing Model. The variance of returns of the underlying asset return is not directly observable and needs to be estimated or implied from historical data or market prices. Therefore, the best choice is E, which includes all three directly observable inputs.

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