The Black-Scholes model assumes that stock price movements can be described by
A) geometric moving averages.
B) arithmetic moving averages.
C) regression towards the mean.
D) geometric Brownian motion.
E) stochastic time lags.

Question

Quizplus · Accepted Answer

The Black-Scholes model assumes that stock price movements follow geometric Brownian motion, which is a continuous-time stochastic process that involves random fluctuations in value over time.

The Black-Scholes Model Assumes That Stock Price Movements Can Be