One of the early extensions to the Black-Scholes model was the constant elasticity of variance (CEV) model for equities. The CEV model assumes the following form of stochastic process for the stock price: 

where the parameters are defined as usual except that 0

(a) What parameter value for β results in the Black-Scholes model? 

(b) As β declines, does the riskiness of the stock increase or decrease? 

(c) Explain the linkage of this model to the leverage effect.