Due to the limitations of the Black-Scholes option pricing model, it is least problematic to value
A) American options on dividend-paying stocks
B) American options on non-dividend paying stocks
C) European options on dividend-paying stocks
D) either American or European options regardless of the dividend payments

Question

Quizplus · Accepted Answer

The Black-Scholes option pricing model assumes that the underlying stock pays no dividends, and therefore, it is least problematic to value European options on dividend-paying stocks. American options on dividend-paying stocks are more complex as the early exercise decision is impacted by the dividend payments, which the Black-Scholes model does not account for.

Due to the Limitations of the Black-Scholes Option Pricing Model