Which of the Following Statements About the Binomial Interest Rate

question 7

Multiple Choice

Which of the following statements about the binomial interest rate option pricing model is INCORRECT?

• A) The binomial model is popular because it is accessible and easy to understand.
• B) The binomial model is a useful teaching tool.
• C) The binomial model is a versatile model that can price a variety of derivatives.
• D) The binomial model illustrates the main tenets of martingale pricing,the key technique that lies at the heart of derivative pricing.
• E) The binomial model is more accurate than the Heath-Jarrow-Morton model because it makes a more realistic assumption about the bond price evolution than the HJM model.

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Definitions:

Public Trust

The confidence that the public has in the integrity, responsibility, and fairness of government, corporations, and other institutions.

Federal Government

The national government of a federation that has authority over the individual member states, and is responsible for areas such as defense, foreign affairs, and the economy.

Milton Friedman

An American economist and Nobel Prize laureate recognized for his research in consumption analysis, monetary history and theory, and the complexity of stabilization policy.

Prosperity and Freedom

Concepts often linked in political and economic discourse, suggesting that economic success leads to or enhances personal and civic liberties.