What are the limitations of the Black-Scholes model for option pricing?

• A. It assumes constant volatility and interest rates, lognormal underlying returns, no dividends (unless adjusted), continuous hedging, no transaction costs; ignores skew, jumps, and liquidity.
• B. It accounts for stochastic volatility and jumps exactly.
• C. It prices options with discrete hedging and transaction costs.
• D. It assumes prices follow a normal distribution with heavy tails.

Answer: (A)