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Does Black-Scholes Framework for Option Pricing Use Constant Volatilities and Interest Rates?

January 16, 2013

Many believe that when using the famous Black-Scholes framework for option pricing, you must assume that the stock volatility and risk free interest rate are constant. The authors of this whitepaper seek to prove that this belief is only partially true and that there are work-arounds in which the volatility and interest rates can be held as non-constant parameters.

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