Briefly Explain the Implied Assumption When Risk-Neutral Method Is Used

question 41

Essay

Briefly explain the implied assumption when risk-neutral method is used for valuing real options.

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Definitions:

Stimulus Generalization

The process by which a response that has been learned to one stimulus is elicited by a different, but similar, stimulus.

Conditioned Stimulus

A previously neutral stimulus that, after becoming associated with the unconditioned stimulus, eventually comes to trigger a conditioned response.

Conditioned Response

A learned response to a previously neutral stimulus that has become associated with an unconditioned stimulus in classical conditioning.

Secondary Reinforcer

A stimulus that has become reinforcing through its association with a primary reinforcer.