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Homework answers / question archive / This question is designed to make sure you know how to derive the Black-Scholes partial differential equation (pde)
This question is designed to make sure you know how to derive the Black-Scholes partial differential equation (pde).
a) Write down the key assumptions of the Black-Scholes model.
Answer: The Black scholes modal makes certain assumptions: The option is European and can only be exercised at expiration. No dividends are paid out during the life of the option. Markets are efficient (i.e market movements cannot be predicted)
