black-scholes model

Question 1

assumptions of the model:

Answer 1

there’s a risk-free interest to borrowing/lending that remains constant
share price follows geometric brownian motion
no transaction costs
shares don’t pay dividends
financial contracts are perfectly divisible
no restrictions on short selling

Question 2

black-scholes equation:

Answer 2

(∂V/∂t)+(1/2)σ^(2)S^(2)(∂^2V/∂S^2)+rS(∂V/∂S)-rV=0