One limitation to the Black-Scholes model is that strictly speaking it is only applicable to options that do not
A) have an expiration date
B) pay dividends over the life of the option
C) display implied volatility
D) have an intrinsic value

Question

Quizplus · Accepted Answer

The Black-Scholes model assumes that the underlying asset does not pay dividends over the life of the option. But in reality, many assets do pay dividends, and this can affect the price of the option. Therefore, the Black-Scholes model is not ideal for modeling options on assets that pay dividends.

One Limitation to the Black-Scholes Model Is That Strictly Speaking