A. Questions for Submission
8.1 Empiricism about option prices
Evaluate the extent to which Black-Scholes pricing introduces empiricism into options trading.
8.2 Risk-free portfolios and efficiency
How does Black-Scholes pricing theory argue that all options should be priced as if they were part of a risk-free portfolio? Is this argument reasonable?
8.3 Black-Scholes-Merton theory
- Explain the role of the random walk hypothesis in deriving the Black-Scholes formula.
- Under what circumstances might this hypothesis fail?