A Binomial Tree Prices an American Option at $3

question 2

Multiple Choice

A binomial tree prices an American option at $3.12 and the corresponding European option at $3.04.The Black-Scholes price of the European option is $2.98.What is the control variate price of the American option?

• A)$3.06
• B)$3.18
• C)$2.90
• D)$3.08

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Definitions:

Ventricular Contraction

This refers to the phase in the cardiac cycle where the ventricles (lower chambers of the heart) contract to pump blood out to the body and lungs.

Apex

Extremity of a conical or pyramidal structure. The apex of the heart is the rounded tip directed anteriorly and slightly inferiorly.

AV Bundle

The bundle of His, which is a collection of heart muscle cells specialized for electrical conductivity that transmits the electrical impulses from the AV node to the point of the apex of the fascicular branches.

SA Node

Sinoatrial node, the heart's natural pacemaker, initiating the electrical impulses that set the rate and rhythm of your heartbeat.