Which of the Following Statements Is False

question 8

Multiple Choice

Which of the following statements is false?

• A) The techniques of the binomial option pricing model are specific to European call and put options.
• B) We can summarize the payoffs for the Binomial Option Pricing Model in a binomial tree - a timeline with two branches at every date that represent the possible events that could happen at those times.
• C) We define the state in which the stock price goes up as the up state and the state in which the stock price goes down as the down state.
• D) When using the Binomial Option Pricing Model, by the Law of One Price, the price of the option today must equal the current market value of the replicating portfolio.

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Definitions:

Misinformation Effect

The occurrence when an individual's memory of events is distorted due to information received after the event.

Encoding Failure

The phenomenon in which information does not enter the brain's long-term memory, typically resulting in the inability to recall this information later.

Event Imagined

The act of mentally visualizing or simulating a possible event in one's mind.

Memory Construction

The process by which our brain encodes, stores, and retrieves information, heavily influenced by our perceptions, beliefs, and experiences.