B is correct. The Black-Scholes-Merton (BSM) model makes several key assumptions:

1. Continuous price movements: The underlying asset price follows a geometric Brownian motion with continuous paths
2. Constant interest rates: The risk-free interest rate is known and constant
3. Constant volatility: The volatility of returns is constant
4. No dividends: The underlying pays no dividends during the option's life
5. No transaction costs: Perfect liquidity and frictionless markets
6. European-style exercise: Options can only be exercised at expiration
7. Log-normal distribution: Returns are log-normally distributed

All options A, C, and D are actually correct assumptions of the BSM model, but the question appears to be asking for which one is specifically correct, and the answer provided in the text is B.