In a Two-Period Binomial World,a Mispriced Call Will Lead to an Arbitrage

question 12

Multiple Choice

In a two-period binomial world,a mispriced call will lead to an arbitrage profit if

• A)the proper hedge ratio is maintained over the two periods
• B)the hedge portfolio is terminated after one period
• C)the option goes from over- to underpriced or vice versa
• D)the option remains mispriced over both periods
• E)none of the above

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