Which of the Following Statements Is False

question 32

Multiple Choice

Which of the following statements is false?

• A) A replicating portfolio is a portfolio of other securities that has exactly the same value in one period as the option.
• B) By using the Law of One Price, we are able to solve for the price of the option as long as we know the probabilities of the states in the binomial tree.
• C) The binomial tree contains all the information we currently know: the value of the stock, bond, and call options in each state in one period, as well as the price of the stock and bond today.
• D) The idea that you can replicate the option payoff by dynamically trading in a portfolio of the underlying stock and a risk-free bond was one of the most important contributions of the original Black-Scholes paper. Today, this kind of replication strategy is called a dynamic trading strategy.

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Definitions:

Enhancer

A substance or factor that increases the effectiveness or strength of a given outcome.

Mediating Variable

A variable that helps to explain the relationship between two other variables, often clarifying how or why such a relationship exists.

Situational Variable

A factor that influences the outcome of a study or the effectiveness of a leadership style, which can change depending on the context or environmental settings.

Time Management

The process of organizing and planning how to divide one's time between specific activities effectively and efficiently.