When the Number of Time Periods in a Binomial Model

question 25

Multiple Choice

When the number of time periods in a binomial model is large,a European call option value does what?

• A)fluctuates around its intrinsic value
• B)converges to a specific value
• C)increases without limit
• D)converges to the European lower bound
• E)none of the above

---

Definitions:

Variable Costs

Variable costs are expenses that change in proportion to the activity or volume of a business operation, such as materials and labor.

CCA Class

Capital Cost Allowance Class, a Canadian tax classification system for categories of depreciable property.

Book Value

is the net value of a company's assets found on its balance sheet, subtracting liabilities from the total value of assets.

Resell

The act of selling something that one has purchased to another buyer, often for a price higher than the original purchase price.