What Feature of the Abandonment Option Makes the Use Binomial

question 15

Essay

What feature of the abandonment option makes the use binomial pricing more appealing than the Black Scholes pricing model?

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Definitions:

Total Variable Costs

The expenses that change in proportion to the activity of a business.

Drones

Unmanned aerial vehicles used for a variety of purposes including surveillance, delivery, agriculture, and photography.

Diminishing Returns

A principle stating that as investment in a particular area increases, the rate of profit from that investment, after a certain point, will begin to decrease.

Average Total Cost

The total cost of production divided by the quantity of output produced.