Which of the Following Statements Is INCORRECT About the Binomial

question 19

Multiple Choice

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

• A) The binomial model is popular because it is accessible and easy to understand.
• B) The binomial model gives more accurate results than the Black-Scholes Merton model.
• C) The binomial model is a useful teaching tool.
• D) The binomial model is a versatile model that can price a variety of derivatives.
• E) The binomial model illustrates the main tenets of martingale pricing,the key technique that lies at the heart of derivative pricing.

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Definitions:

Substitutes

Goods or services that can be used in place of each other; as the price of one increases, the demand for the other increases.

Price Inelastic

Describes a situation where the demand for a product does not significantly change with a change in its price.

Gasoline Demand

The total quantity of gasoline that consumers are willing and able to purchase at various prices, within a given time period.

Equilibrium Price

The price at which the quantity of a good demanded equals the quantity of the good supplied.