Explanation:
The Black-Scholes model makes the following key assumptions:
Option B is the incorrect assumption because the Black-Scholes model assumes that the risk-free interest rate is constant, not that it changes randomly over time.
Analysis of other options:
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Which of the following is not an assumption of the Black-Scholes options pricing model?
A
The price of the underlying moves in a continuous fashion.
B
The interest rate changes randomly over time.
C
The instantaneous variance of the return of the underlying is constant.
D
Markets are perfect, i.e. short sales are allowed, there are no transaction costs or taxes, and markets operate continuously.