As the Number of Steps in the CRR Binomial Tree

question 3

Multiple Choice

As the number of steps in the CRR binomial tree increases (keeping maturity fixed) ,the solution "converges" to a limit result.Which of the following statements characterizes this convergence best?

• A)The solution results in the Black-Scholes formula.
• B)The convergence may be oscillatory for even and odd number of steps in the tree.
• C)The convergence may be monotonic for even and odd number of steps in the tree.
• D)All of the above.

Recognize the connection between net capital outflow and the supply of dollars in the foreign-currency exchange market.

Analyze the effects of changes in national saving, government deficits, and real interest rates on the open-economy macroeconomic model.

Examine the impact of international trade and trade restrictions on net exports, the real exchange rate, and the demand for dollars in the foreign-currency exchange market.

Distinguish between various factors that shift the demand and supply curves in the markets for loanable funds and foreign-currency exchange.

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