The Black-Scholes-Merton model assumes that the stock price follows:

Name: The Black-Scholes-Merton model assumes that the stock price follows:
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The Black-Scholes-Merton model assumes that the stock price follows a lognormal distribution. This assumption is based on the fact that stock prices cannot fall below zero, and therefore the log of the stock prices follows a normal distribution. The underlying asset can be anything that follows a lognormal distribution, such as a stock or a commodity.

The Black-Scholes-Merton Model Assumes That the Stock Price Follows