Asked by cemsid miroglu on May 12, 2024
Verified
Rubinstein (1994) observed that the performance of the Black-Scholes model had deteriorated in recent years, and he attributed this to
A) investor fears of another market crash.
B) higher-than-normal dividend payouts.
C) early exercise of American call options.
D) decreases in transaction costs.
E) None of the options are correct.
Black-Scholes Model
A mathematical model used to price European options, factoring in stock volatility and time to expiration.
Deteriorated Performance
A decline in the operational or financial outcomes of an individual, organization, system or asset.
American Call Options
Options that give the holder the right to buy an underlying asset at a certain price at any time before the expiration date.
- Understand the factors that influence options pricing and valuation.
Verified Answer
BU
Brian UthayakumarMay 15, 2024
Final Answer :
A
Explanation :
Rubinstein (1994) attributed the deterioration in the performance of the Black-Scholes model to investor fears of another market crash. This observation reflects the impact of psychological factors and market sentiment on the effectiveness of financial models.
Learning Objectives
- Understand the factors that influence options pricing and valuation.