short term cash proceeds
proceeds in cheques
full cash proceeds
zero proceeds
Answer is Right!
Answer is Wrong!
The correct answer is: A. short term cash proceeds.
The Black-Scholes model is a mathematical model that determines the price of a European call option. It is based on the following assumptions:
- The underlying asset price follows a geometric Brownian motion.
- The interest rate is constant.
- The volatility of the underlying asset price is constant.
- There are no dividends paid on the underlying asset.
- The option can only be exercised at maturity.
The Black-Scholes model can be used to calculate the fair price of a European call option. The fair price is the price at which the option should trade in an efficient market.
The short term seller receives today price which is the present value of the expected future payoff of the option. The present value is calculated using the risk-free interest rate.
The other options are incorrect because:
- Option B, proceeds in cheques, is not a specific type of cash proceeds.
- Option C, full cash proceeds, is not always the case. For example, if the option is out of the money, the seller will receive zero cash proceeds.
- Option D, zero proceeds, is not always the case. For example, if the option is in the money, the seller will receive a positive cash proceeds.