In Order for a Binomial Option Price to Approach the Black

question 52

Multiple Choice

In order for a binomial option price to approach the Black Scholes price, ________.

• A) the number of subintervals must increase substantially
• B) the volatility must be low
• C) the probability of each subinterval needs to be similar to the stock's standard deviation
• D) the interest rate needs to increase

---

Definitions:

Median

The middle value in a set of data when it is ordered in numerical sequence, or the average of the two middle values when the set has an even number of values.

Average

A statistical measure that summarizes a data set by dividing the sum of all values by the number of values.

Total

Referring to the complete amount or sum of parts.

Relative Frequency

In statistics, relative frequency refers to the ratio of the number of times a particular event occurs to the total number of events observed.