Which of the Following Statements Is False

question 35

Multiple Choice

Which of the following statements is false?

• A) After we have constructed the tree and calculated the probabilities in the risk-neutral world, we can use them to price the derivative by simply discounting its expected payoff (using the risk neutral probabilities) at the risk-free rate.
• B) By using the probabilities in the risk-neutral world we can price any derivative security-that is, any security whose payoff depends solely on the prices of other marketed assets.
• C) To ensure that all assets in the risk-neutral world have an expected return equal to the risk-free rate, relative to the true probabilities, the risk-neutral probabilities underweight the bad states and overweight the good states.
• D) In Monte Carlo simulation, the expected payoff of the derivative security is estimated by calculating its average payoff after simulating many random paths for the underlying stock price.

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Personal Utility

The subjective value or satisfaction a person derives from using a product or service, based on personal preferences and needs.

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The act of confirming or endorsing something as accurate, valuable, or worthy of recognition.

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Immediacy in communication refers to the perception of closeness or warmth between individuals, often achieved through nonverbal cues, leading to enhanced connection and understanding.

Personal Utility

Refers to the value or benefit that an individual personally gains from using a product, service, or tool.