23-23 The Black-Scholes model does not work well to value bond options because of violations of the underlying assumption of a constant variance of returns on the underlying asset.

Question

Quizplus · Accepted Answer

The Black-Scholes model assumes a constant variance of returns on the underlying asset, which does not hold in the case of bond options. Therefore, the model may not provide accurate valuations for these types of options.

23-23 the Black-Scholes Model Does Not Work Well to Value