The Smaller the Time Periods Used in the Binomial Model

question 68

True/False

The smaller the time periods used in the binomial model, the closer it will come to approximating the Black-Scholes' model price.

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Definitions:

Depreciation

The systematic allocation of the cost of a tangible asset over its useful life, reflecting the decrease in value over time due to use and wear.

Long-Lived Asset

Assets with a useful life extending beyond one year, typically including property, plant, and equipment, and used in the operation of a business.

Productive Life

The expected period during which an asset is able to provide economic benefits or contribute to revenue generation.

Ordinary Repairs

Ordinary repairs are routine maintenance expenses undertaken to maintain the efficiency and operating condition of an asset but do not significantly extend its life.