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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Definitions:

Laying Anyone Off

The process of terminating employees due to business reasons such as cost-cutting, downsizing, or restructuring, rather than individual performance issues.

Facilitate Style

An approach or method in leadership or management that emphasizes enabling and supporting participants or team members to achieve their goals.

Subordinate Empowerment

The process of delegating power and responsibility to lower-level employees, enhancing their role in decision-making and problem-solving.

Highest Level

The utmost degree or maximum extent of a particular quality, status, or achievement.