Explain why the Black-Scholes model is inappropriate if the stock can gap.
Question:
Explain why the Black-Scholes model is inappropriate if the stock can gap.
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Answer rating: 50% (2 reviews)
The BlackScholes model is a mathematical model used in financial markets to calculate the theoretica...View the full answer
Answered By
Sultan Ghulam Dastgir
The following are details of my Areas of Effectiveness English Language Proficiency, Organization Behavior , consumer Behavior and Marketing, Communication, Applied Statistics, Research Methods , Cognitive & Affective Processes, Cognitive & Affective Processes, Data Analysis in Research, Human Resources Management ,Research Project,
Social Psychology, Personality Psychology, Introduction to Applied Areas of Psychology,
Behavioral Neurosdence , Historical and Contemporary Issues in Psychology, Measurement in Psychology, experimental Psychology,
5.00+
1+ Reviews
10+ Question Solved
Related Book For
Question Posted:
Students also viewed these Engineering questions
-
Explain why the Black option on futures pricing model is simply a pricing model for options on instruments with a zero cost of carry?
-
The Black-Scholes-Merton Model for European call option on stock and the Black Model for European call option on forward (future) are two pricing models that can potentially be used to determine the...
-
Based on today's quote for ABC stock and option with 6 months to expiration: Current stock price for ABC: 100 Stock pays no dividends. Strike price of call option: 97 Annual risk-free rate: .03...
-
DBU Systems manufactures testing equipment for the communications industry. In developing a new device for maritime communication, the design group has estimated the following unit costs. Metal...
-
A trisubstituted cyclohexane with three substituents? red, yellow, and blue?undergoes a ring-flip to its alternative chair conformation. Identify each substituent as axial or equatorial, and show the...
-
What is C in the accompanying figure? 40 30 20 i= 10% 2
-
Hassink Housewares Ltd produces furniture and is evaluating the purchase of a new machine that will cost \($1\) 138 200 and have no residual value. Annual net cash inflows (including tax payments)...
-
Which of the following might affect the price of a hamburger at Waldo's Lunch counter and why? a. The price of meat goes up. b. A new restaurant tax of 50 per hamburger is imposed. c. Waldo's is...
-
4) What is the output of the following Java code in Figure I below? public class Fool final int var=107 public static void main(String[] args) { Foo new Foo(); 1.var=201 System.out.println("Var is...
-
Is assuming a constant (nonstochastic) interest rate in the Black-Scholes model a major deficiency of the model?
-
Is it possible to build a recombining tree if the interest rate is not constant, nor stochastic, but a deterministic function of time, i.e., r(t)?
-
Indicate whether the statement is true or false, and if it is false, provide a correct statement. The derivative of a vector-valued function is the slope of the tangent line, just as in the scalar...
-
Describe the difference between listening and hearing.
-
Differentiate between formal and behavioral roles, and describe how behavioral roles emerge during group interaction.
-
Judy and her fellow group members were highly frustrated by each other, in part because their needs and corresponding orientations toward the groups work were so different. However, instead of...
-
Explain four ways to use language for maximum effectiveness in small groups.
-
The membership of Best Friends has changed over the years. Some of the people who started the group have moved on to other things while new members have found their place at Best Friends. Membership...
-
Provide an intuitive explanation of the modified internal rate of return (MIRR) financial performance metric. How does MIRR differ from IRR?
-
Wal-Mart is the second largest retailer in the world. The data file on the disk holds monthly data on Wal-Marts revenue, along with several possibly related economic variables. a) Using computer...
-
If investors aversion to risk increased, would the risk premium on a high-beta stock increase more or less than that on a low-beta stock? Explain.
-
If a companys beta were to double, would its expected return double?
-
Is it possible to construct a portfolio of stocks which has an expected return equal to the risk-free rate?
-
A project that provides annual cash flows of $15,300 for nine years costs $74,000 today. a. At a required return of 8 percent, what is the NPV of the project? Note: Do not round intermediate...
-
A seller has offered credit terms of 2.5/5 net 50 to a customer that has agreed to immediately purchase 500 units at a sales price per unit of $100. Variable costs are $65 per unit and involve an...
-
You are choosing between two projects. The cash flows for the projects are given in the following table ($ million): Project Year 0 Year 1 Year 2 Year 3 Year 4 A B $48 - $99 $23 $22 $20 $15 $20 $40...
Study smarter with the SolutionInn App