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  1. Dec 2019
    1. The option is European and can only be exercised at expiration.No dividends are paid out during the life of the option.Markets are efficient (i.e., market movements cannot be predicted).There are no transaction costs in buying the option.The risk-free rate and volatility of the underlying are known and constant.The returns on the underlying are normally distributed.

      Some of the assumptions underlying the Black-Scholes model. Do these limit its realism and predictive power?