Why given method provides reasonable estimate of an option

Assignment Help Finance Basics

Reference no: EM132043740

Qusetion: The general binomial method for option pricing has, at its root, the valuation of a one-period option on a stock with only two possible future values (by constructing a portfolio consisting of shares of the stock and borrowing that has the same value in period one as the option). Explain why this method provides a reasonable estimate of the value of an option. (Or, what assumptions must hold about the future value of an asset in order for the option price calculated using the binomial method to be true?)

Reference no: EM132043740

Questions Cloud

Describe the two versions of the trolley problem : Please read the article ( Tom Chatfield, "Automated Ethics") and answer the following questions: Briefly describe the two versions of the "Trolley Problem".

Who did not contract the disease were recorded : Consider the situation where test groups of 500 were selected and the percentages of those who did not contract the disease were recorded.

What is total paid-in capital : Panhandle Corporation was organized on January 3, 2010. Paid dividends of $100,000. What is total Paid-in capital at the end of 2010

Set s of strings over the alphabet : Describe the strings in the set S of strings over the alphabet S = {a, b, c} defined recursively by (1) c ? S

Why given method provides reasonable estimate of an option : The general binomial method for option pricing has, at its root, the valuation of a one-period option on a stock with only two possible future values.

Evaluate the three standard organizations : Evaluate the three (3) standard organizations including IEEE, ISO, and ANSI to determine the most important for communication technology.

What is the amount of net pay for the employee : An employee earns $5,750 per month working for an employer. What is the amount of net pay for the employee for the month of January

Prepare journal entries for sales and sales returns : What amount of sales revenue should Paramount recognize for 2013. Prepare journal entries for sales and sales returns of 2013

Find ratio of long-term debt to long-term debt plus equity : A firm has $100 million in current liabilities, $200 million in total long-term liabilities, $300 million in stockholders' equity, and total assets.

User Account

All Pages