The Black-Scholes Model Differs from the Binomial in That

question 12

Multiple Choice

The Black-Scholes model differs from the binomial in that

• A)The mathematics it requires is much simpler.
• B)It provides closed-form solutions for option prices,so can price European options faster than the binomial model.
• C)It can handle stochastic interest rates more efficiently than the binomial.
• D)It was developed after the binomial model and is therefore more current.

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Definitions:

Labor

Refers to human effort, whether physical or mental, used in the production of goods and services.

Derived Demand

The demand for a good or service that results from the demand for a different, or intermediate, good or service.

Resources

Assets, materials, and human capabilities used to produce goods and services in an economy.

Final Goods

Refers to products that have completed the manufacturing process and are purchased by consumers without further processing.