If a Categorical Variable Has K Levels, the Number of Dummy

question 65

Multiple Choice

If a categorical variable has k levels, the number of dummy variables required is​

• A) ​k - 1.
• B) ​k.
• C) ​k + 1.
• D) ​2k.

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Definitions:

Put-Call Parity

A financial principle stating that the price of a call option and a put option of the same underlying asset, with the same strike price and expiration date, should be in equilibrium.

Equilibrium

A state in a market where supply equals demand, leading to stable prices and quantities.

Strike Prices

The predetermined prices at which the holder of an option can buy (call option) or sell (put option) the underlying asset.

Exercise Price

The Exercise Price, also known as the strike price, is the price at which the holder of an option contract can buy (in the case of a call option) or sell (in the case of a put option) the underlying asset or security.