234The riskless-portfolio argumentdepends on basically the sameassumptions as the replicating portfolio argument in the binomial asset pricing model, except that we assume here thatthe stock pricefollows a geometric Brownian motion. (This implies continuous
trading is assumed to be possible.)Empirical studies of stock price returns have consistently shown this not to be the case!
Derivative securities: Options - Black-Scholes modelBlack-Scholes model: Main ideas