Which of the Following Statements About Option Pricing in a Multiperiod

question 7

Multiple Choice

Which of the following statements about option pricing in a multiperiod framework using synthetic construction is INCORRECT?

• A) The two assets,a stock and a money market account,dynamically complete the market by matching all possible option values at maturity.
• B) The replicating portfolio is self-financing.
• C) The replicating portfolio is arbitrage-free.
• D) Option prices obtained for different period setups are different.
• E) The pricing model estimates real-world probabilities and uses them for the expected payoff computations.

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Definitions:

Increase in Supply

A scenario where there is a growth in the availability of a product or service, often due to improvements in technology or increases in input resources.

Quantity Demanded

The total amount of a good or service that consumers are willing and able to purchase at a given price level in a specified period.

Agricultural Economist

A professional specializing in the study and application of economic principles within the agricultural sector, focusing on maximizing efficiency and productivity.

Corn Prices

The cost at which corn is bought or sold, which can fluctuate based on factors like supply, demand, and market conditions.