1. The stock pays no dividends during the option's life.
2. European exercise terms are used. European exercise terms assume that the option can only be exercised on the expiration date.
3. Interest rates remain constant and known and volatility of the underlying are known and constant.
4. No commissions are considered in the calculation.
5. Markets are efficient and returns are lognormally distributed.
6. This calculation gives a theoretical estimate of the price of European-style options.