What Happens to the Price of an Option Using a Binomial

question 34

Multiple Choice

What happens to the price of an option using a binomial option pricing model with many periods as the numbers of periods increases?

• A) The model because useless for calculating the price of an option.
• B) The value of a put and a call option are less divergent.
• C) The put option price gets closer to zero and the call option price gets closer to infinity.
• D) The option price converges towards the option price from the Black-Scholes model.
• E) The time value of the option decreases exponentially with the number of periods.

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Definitions:

Partner's Equity

The interest or ownership a partner has in a partnership, representing their claim on the assets after liabilities are settled.

Owner's Equity

The residual interest in the assets of a company after deducting liabilities, representing the owner's claim on the company's resources.

Capital Account

An account showing the net worth of a business at a specific point in time, including the owner's investment and retained earnings.

Capital Balance

The amount of money or value of assets contributed by owners or partners to a business, reflecting their equity in the business.