The Black-Scholes option-pricing formula was developed for ________.
A) American options
B) European options
C) Tokyo options
D) out-of-the-money options

Question

Quizplus · Accepted Answer

The Black-Scholes option-pricing formula was specifically developed for pricing European-style options, which can only be exercised at expiration. It does not apply to American-style options, which can be exercised at any time prior to expiration. Additionally, the formula is not specific to any particular geographic location or type of option (such as out-of-the-money options), but rather is based on certain assumptions and inputs related to the underlying asset, volatility, time to expiration, and risk-free interest rate.

The Black-Scholes Option-Pricing Formula Was Developed for ________