In the Cox-Ross-Rubinstein (CRR) Binomial Model, the Volatility Is Given $\sigma = 0.2$

question 18

Multiple Choice

In the Cox-Ross-Rubinstein (CRR) binomial model, the volatility is given as $\sigma = 0.2$ . The risk-free rate of interest is 2%. What is the risk-neutral probability of an up move on a binomial tree with a time step of one month?

• A) 0.45
• B) 0.50
• C) 0.55
• D) 0.60

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Definitions:

Posttest-Only Control

A research design in which outcomes are measured only after the experimental intervention, without a pretest, to assess the intervention's effect.

Group Equivalence

A condition in experimental research where the groups being compared are equal or similar in all relevant aspects except for the intervention being tested.

Repeated Testing

The process of conducting the same test multiple times to verify the reliability and consistency of its results.

Placebo Control Group

is a group in an experiment that receives a sham or inactive treatment, which is used to assess the psychological impact of receiving treatment rather than the treatment's actual efficacy.