Describe the Black-Scholes model and discuss its assumptions and limitations.

The Black-Scholes Model The Black-Scholes model is a mathematical model that calculates the fair price of European-style call and put options. It was developed by Fischer Black and Myron Scholes in 1973 and is widely used by options traders and portfolio managers. The model is based on the following assumptions: The underlying asset's price follows a geometric Brownian motion. This means that the asset's price is assumed to be normally distributed and that its volatility is constant. The risk-free rate is constant. This means that the interest rate is assumed to be constant over the life of the option. There are no transaction costs or taxes. Advantages of the Black-Scholes Model The Black-Scholes model is a powerful tool that can be used to value options....