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Abstract

Extract:

The Black-Scholes model is derived under the assumption that hedging is done instantaneously. In practice, there is a "small" time that elapses between buying or selling the option and hedging using the underlying asset. Under the following assumptions used in the standard Black-Scholes analysis, the value of the option will depend only on the price of the underlying asset S, time t and on other variables assumed constants. These assumptions or "ideal conditions" as expressed by Black-Scholes are the following.

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