Explanation:
One assumption underlying the BSM option pricing model is that the options are European (i.e., they can only be exercised at maturity). The other assumptions are accurate.
(Book 4, Module 61.2, LO 61.c)
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Question 83
An asset manager decides to use the Black-Scholes-Merton (BSM) option pricing model, along with market prices for options, to better understand implied volatility. Which of the following statements would not be an assumption underlying the BSM option pricing model?
A
Asset prices follow a lognormal distribution.
B
The volatility of the underlying asset is constant.
C
The asset has no cash flows.
D
The options can be exercised at any time.
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