The Black-Scholes-Merton Model

Who discovered the option formula?

• Fischer Black alone

• Myron Scholes alone

• Robert C. Merton alone

• All of the above

Was the paper they wrote accepted by the journals initially?

• Yes.

• Not sure

• Got reviewed.

• Rejected initially，then accepted finally.

The value of an option NOT depends on

• volatility of the stock

• the expected return of the stock

• the excercise price

• the interest rate

Which portfolio fits a hedging position?

• long with stock, short with call option with a proper ratio

• long with stock, long with call option with a proper ratio

• long with stock, short with put option with a proper ratio

• long with stock, long with put option with a proper ratio

Does the hedged position change as the stock price changes?

• sometimes it does

• not at all

• yes

• frequently it does

Which statement is correct for a hedging position?

• It is risk.

• The position need to be adjusted very frequently to maintain.

• The position can be valid for a relatively long time.

• The expected return is interest rate.

Fischer started working on the differential equation by valuing

• a swap

• a forward

• a warrant

• a future

Which one is INCORRECT for deriving the formula?

• assume both of stock and option's risk can be diversified

• what Black and Scholes did differed greatly from Merton.

• to discount the option's expected terminal value to present.

• assume that stock's beta is 0.

Which one is CORRECT when the authurs began to test the formula on real market?

• the market is always right.

• They can't put all the information of market intothe formula.

• The formula is always right.

• The market knows better than the formula.

How to gain profit from the market by applying the formula?

• continuously create a close-to-riskless hedge all the time.

• buy the underestimated option and sell the overestimated one

• The profit from the OTC market is larger than listed option.

• Now is more easier to gain profit than the 1970s.