Suppose That the Stock Price Is Stochastic (Say, Lognormal) with Constant

question 2

Multiple Choice

Suppose that the stock price is stochastic (say, lognormal) with constant volatility, and that the interest rate, though not stochastic changes from period to period on the tree. Which of the following statements is valid?

• A) The stock process may be represented by a CRR binomial tree and it will be recombining.
• B) The stock process may be represented by a JR binomial tree and it will be recombining.
• C) Both (a) and (b).
• D) Neither (a) nor (b).

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Definitions:

Tests

Procedures or methods used to assess the presence, quality, or truth of something, often referring to examinations measuring knowledge, performance, or physical condition.

Pre-Socratic Materialists

Early Greek philosophers who believed that the physical world is composed entirely of matter without the influence of supernatural forces.

Ultimate Reality

A concept in various philosophical and religious traditions referring to the most fundamental nature of existence, beyond which no further causal explanation can be sought.

Anaximander

An early Pre-Socratic philosopher from Miletus in Ionia, notable for his work in cosmology, geography, and biology.