Which of the Following Describes How American Options Can Be

question 10

Multiple Choice

Which of the following describes how American options can be valued using a binomial tree?

• A) Check whether early exercise is optimal at all nodes where the option is in-the-money
• B) Check whether early exercise is optimal at the final nodes
• C) Check whether early exercise is optimal at the penultimate nodes and the final nodes
• D) None of the above

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Definitions:

Independent Variable

A variable in an experiment that is manipulated or changed by the researcher to observe its effect on the dependent variable.

Dependent Variable

In an experimental setting, it is the variable being tested and measured, expected to change as a result of manipulations to the independent variable.

Internal Validity

The degree to which an experiment or study accurately measures or tests what it intends to, without the influence of external factors.

Operationalizing

The process of defining a research variable in practical, measurable terms, allowing it to be quantitatively or qualitatively analyzed.