The Black-Scholes option pricing model:
A) Must express time as the number of years until an option expires
B) Assumes the call and put options have different exercise prices
C) Is based on European style, not American style, options
D) Assumes the call and put options have different expiration dates
E) Uses a stock's variance as the measure of volatility

Question

Quizplus · Accepted Answer

The Black-Scholes model isn't designed to value American-style options as they can be exercised at any time before expiration. Additionally, the model assumes that both call and put options have the same expiration date and strike price. Lastly, the model uses the stock's standard deviation, not variance, as its measure of volatility.

The Black-Scholes Option Pricing Model