Answer: continuous trading is available.

## Explanation The Black-Scholes-Merton model makes several key assumptions: - **Continuous trading is available** (Option A) - This is correct. The model assumes that trading can occur continuously, which allows for perfect hedging through dynamic portfolio rebalancing. - **Early exercise of the option is not allowed** - Option B is incorrect. The model assumes European-style options that can only be exercised at expiration, not American-style options that allow early exercise. - **The volatility of the underlying is known and constant** - Option C is incorrect. The model assumes volatility is known and remains constant over the option's life. Other key assumptions include: - No dividends are paid during the option's life - No transaction costs or taxes - Risk-free rate is known and constant - Returns are log-normally distributed - Markets are efficient Therefore, the correct answer is A.

Author: LeetQuiz Editorial Team