To Derive a One-Period Binomial Option Pricing Model for a Call

question 2

Multiple Choice

To derive a one-period binomial option pricing model for a call option, we begin by constructing a portfolio consisting of ________.

• A) a short position in a certain amount of the asset, and a short call position in the underlying asset.
• B) a long position in a certain amount of the asset, and a long call position in the underlying asset.
• C) a short position in a certain amount of the asset, and a long call position in the underlying asset.
• D) a long position in a certain amount of the asset, and a short call position in the underlying asset.

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Definitions:

Aldosterone

Adrenal hormone that encourages sodium reabsorption by the kidney; concentrates the urine.

Bowman's Capsule

A part of the nephron in the kidney that encloses the glomerulus and where filtration of blood plasma begins in the process of urine formation.

Glomerulus

Cluster of leaky capillaries enclosed by a Bowman’s capsule.

Distal Tubule

Region of a kidney tubule that connects to a collecting tubule.