Increasing the Number of Intervals in the Binomial Model Causes

question 23

Multiple Choice

Increasing the number of intervals in the binomial model causes the price shift parameters to change.New estimates are related to:

• A)the standard deviation of the underlying asset.
• B)the up state multiplier equals the standard deviation divided root n.
• C)the number of intervals in a year.
• D)All of the above.
• E)Increase in the number of intervals in a binomial model does not effect the price shift
• Parameters.

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Definitions:

AVC

Average Variable Cost, which is the variable cost per unit of output, typically considered in the short run.

AFC

Average Fixed Cost, which is the fixed costs of production divided by the quantity of output produced.

MR

Marginal Revenue, which refers to the additional income generated from selling one more unit of a good or service.

MC

The cost associated with producing an additional unit of a good or service, reflecting the increase in total production cost.