A Branching Tree for the Binomial Model

question 15

Multiple Choice

A branching tree for the binomial model:

• A) should capture all possible futures paths for the asset.
• B) has a move down followed by a move up on a subsequent branch to end at the same value as the reverse path.
• C) has a move down followed by a move up on a subsequent branch to end at a lower value than a move up then a move down.
• D) Both should capture all possible futures paths for the asset; and has a move down followed by a move up on a subsequent branch to end at a lower value than a move up then a move down.
• E) Both should capture all possible futures paths for the asset; and has a move down followed by a move up on a subsequent branch to end at the same value as the reverse path.

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Definitions:

Price Elasticity

An indicator of the degree to which demand for a product fluctuates in response to its price variations, showcasing the product's price sensitivity.

Midpoint Method

A technique used in economics to calculate the percentage change between two values, minimizing the importance of the base used in the calculation.

Price Elasticity

An index showing the degree to which demand for an item adjusts in response to its price changes.

Midpoint Method

A technique used in economics to measure the elasticity of a variable by averaging the starting and ending points.