On the last question give me a little time to look up a paper. I'll post it. Essential it shows how the strategy of most long-short hedge funds work. I'd have to look again, but one of the major high frequency strategies uses a version of this.

I'd love to read it, but the easiest way to answer your second question is to point you to 'A non random walk down wall street.'

One huge assumption that Black-Scholes makes is that returns are normal distributed. This is not done for empirical reasons rather mathematical ones, namely it is so convenient.

Edit: Pdf http://www.newyorkfed.org/research/conference/2007/liquidity...

Some meta data and such if you don't feel like going with a pdf:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1015987