22.9 Validity of blacks Model Black's model appears to make two approximations 1. The expected value of the underlying variable is assumed to be its forward price 2. Interest rates are assumed to be constant for discounting We will see that these assumptions offset each other Options, Futures, and other Derivatives, 5th edition 2002 by John C. HullOptions, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 22.9 Validity of Black’s Model Black’s model appears to make two approximations: 1. The expected value of the underlying variable is assumed to be its forward price 2. Interest rates are assumed to be constant for discounting We will see that these assumptions offset each other