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

Question

Quizplus · Accepted Answer

Options on the same stock with the same strike price should have the same implied volatility, but they exhibit progressively different implied volatilities.Rubinstein believes this is due to fear of another market crash.

Rubinstein (1994) Observed That the Performance of the Black-Scholes Model