medium · Quantitative Finance derivatives

In a Black-Scholes world, why does the expected return of the stock μ disappear from the option pricing formula?

1. Because volatility sigma is the only risk parameter the market prices for this option.
2. Because the option can be perfectly replicated by a dynamic portfolio of the stock and cash.
3. Because investors are assumed to be fully risk-neutral in the actual physical world of returns.
4. Because the underlying stock price is assumed to follow a continuous-time geometric random walk process.

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