The Black-Scholes Model Is Based on a Posited Stochastic Process

Multiple Choice

The Black-Scholes model is based on a posited stochastic process for stock prices, where the movements in the stock are represented mathematically by a stochastic differential equation (SDE) . Which of the following statements is most valid?

A) The SDE is a differential equation that changes over time.
B) The solution to the SDE is a random function of time.
C) The solution to the SDE is a deterministic function of time.
D) The solution to the SDE is the Black-Scholes formula.