Which of the Following Is Not an Assumption Underlying the Black-Scholes

Which of the following is not an assumption underlying the Black-Scholes option-pricing model?

A) The risk-free rate is known and constant over the life of the option.
B) The probability distribution of stock prices is lognormal.
C) The world is risk-neutral.
D) The variability of a stock's return is constant.
E) There are no transaction costs involved in trading options.

Correct Answer:

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