The Continuity Correction Is Used to Compensate for the Fact

question 55

Multiple Choice

The continuity correction is used to compensate for the fact that a ___________distribution is used to approximate a ____________ distribution.

• A) discrete; continuous
• B) continuous; discrete
• C) discrete; uniform
• D) binomial; uniform

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Definitions:

Call Premium

The amount by which the price of a call option exceeds its intrinsic value, reflecting the time value and volatility of the underlying asset.

Time Value

The idea that money currently in hand is more valuable than the same sum received in the future because of its ability to earn more over time.

Call Option

A financial contract giving the buyer the right, but not the obligation, to purchase a stock or other asset at a specified price within a certain time frame.

Present Value

The current value of a future amount of money or stream of cash flows given a specified rate of return.