Which of the following is assumed by the Black-Scholes-Merton model?
A. The return from the stock in a short period of time is lognormal
B. The stock price at a future time is lognormal
C. The stock price at a future time is normal
D. None of the above
B
Black-Scholes-Merton assumes that the return from a stock in a short period of time is normally distributed. This means that the stock price at a future time is lognormally distributed.
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