Assumptions of black-scholes-merton option-pricing model

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1. Which of the following is an assumptions of the Black-Scholes-Merton (BSM) option-pricing model?

A. The distribution of the underlying stock price is normal.

B. Transaction costs are zero.

C. Options valued are American style.

D. the risk free rate is positively correlated with the underlying stock price.

2. Which of the following is the best approximation of the gamma of an option if its delta is equal to 0.5 when the price of the underlying security is 70 and 0.6 when the price of the underlying security is 74?

A. 0.01.

B. 0.02.

C. 0.025.

D. 0.4.

Reference no: EM131939986

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