What aspect of the time value of money does the factor of e represent in the Black-Scholes option value formula?
A) Annual compounding
B) Compounding at the expiration time frame
C) Continuous compounding
D) Daily compounding

Question

Quizplus · Accepted Answer

The factor of e in the Black-Scholes formula represents continuous compounding, which is a more accurate estimate of the time value of money than annual or daily compounding. Compounding at the expiration time frame is not a relevant factor in the formula.

What Aspect of the Time Value of Money Does the Factor