If you know that a call option will be profitably exercised, then the Black-Scholes model price will simplify to ________. A) S₀ − X B) X − S₀ C) S₀ − PV(X) D) PV(X) − S₀

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Quizplus · Accepted Answer

The Black-Scholes model price simplifies to the current stock price minus the present value of the exercise price (PV(X)) when it is known that a call option will be profitably exercised. This is because the value of the call option in such a scenario is essentially the difference between the stock's current price and what it will cost to buy the stock at the exercise price, discounted back to the present value.

If You Know That a Call Option Will Be Profitably