What Is the Difference Between Valuing an American and a European

question 6

Multiple Choice

What is the difference between valuing an American and a European option using a tree?

• A) The value of u is higher for American options
• B) The value of u is lower for American options
• C) The time steps for American options are not equal
• D) It is necessary to do two calculations at nodes where the option is in the money

---

Definitions:

Scapegoat Theory

A social psychology concept explaining that individuals or groups are unfairly blamed for problems or negative outcomes, often to divert attention from the true causes.

Group

An ensemble of persons who engage in interaction, have alike features, and as a whole experience a sense of cohesion or identity.

Tensions

Psychological or emotional strain or stress that can arise from a variety of sources, often associated with conflicting demands or challenges.

Realistic Conflict Theory

A social psychological model that explains how conflict and hostility between groups arise from competition over resources or conflicting goals.