Black Scholes

Which of the following is not an assumption of BSM Model? A. Underlying asset does not generate cash flows B. Continuously compounded returns are lognormally distributed C. Option can only be excercised at maturity D. Risk Free rate is constant

I think B.


B I dont think return are continously compounded

B is correct, assumption is that the asset price (not returns) follows lognormal distribution

killing me. got european vs american options confused. this is great. the little meltdown 3 days before the test.

those f*cks will prob do the same question and say it was D…b/c the risk free rate is constant AND KNOWN