Which of the Following Statements About the Multiperiod Binomial Option

question 15

Multiple Choice

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

• A) The pricing technique is described as forward induction.
• B) The pricing technique is described as backward induction.
• C) When the model's parameters are properly set and the model is run over many small intervals,then it gives an answer that approaches the Black-Scholes-Merton model value.
• D) The binomial model can be used to price exotic options.
• E) Strictly speaking,the binomial model is not a separate model but an approximation method.

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Definitions:

Homogeneous Oligopolist

A firm in a market structure where only a few sellers offer products or services that are essentially identical, leading to limited competition.

Highly Concentrated Industry

An industry dominated by a small number of firms, leading to reduced competition and potentially higher prices for consumers.

Pittsburgh Plate Glass

Pittsburgh Plate Glass, known today as PPG Industries, is an American global supplier of paints, coatings, optical products, specialty materials, chemicals, glass, and fiberglass.

Differentiated Oligopoly

A market structure in which a few firms dominate the market, and each firm offers a product or service that is slightly different from that of its competitors.