Which of the Following Statements Is INCORRECT

question 7

Multiple Choice

Which of the following statements is INCORRECT?

• A) The method of computing a stock's present value by its expected payoff using the actual probabilities is known as martingale pricing.
• B) A martingale is a stochastic process X(t)whose time t value equals its expected value X(T)at some later date T.
• C) Martingales are associated with "fair gambles" because what you have today is what you expect to have tomorrow.
• D) In finance,martingales are used to price derivatives in a framework that allows no arbitrage opportunities.
• E) The probabilities we use in martingale pricing are pseudo-probabilities and not the actual probabilities.

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Definitions:

Rational Choice

A theory in economics and sociology that explains decisions by individuals as based on the attempt to maximize personal advantage, minimizing disadvantages.

Maximize Benefits

The act of making the best or most effective use of a situation, opportunity, or resource to gain the greatest advantage or value.

Minimize Costs

Strategies or actions taken to reduce expenses and financial outlays in business operations or personal budgets.

Hochschild

Arlie Russell Hochschild, a sociologist known for her research on emotions, gender roles, and the division of labor in families and workplaces.