8) Binomial Trees Flashcards
1
Q
Describe a one-step tree diagrams to represent the share and call option price
A
2
Q
What is the expected share price (using a binomial tree)
A
3
Q
What is the expected call option price (using a binomial tree)
A
4
Q
What does Δ represent
A
The number of shares per call in a portfolio
5
Q
What specific number of shares ensure a constant payoff at expiry time
A
6
Q
Describe the proof that this number of shares has a guaranteed (constant) payoff
A
7
Q
What is the the initial call option price (from one-step binomial tree)
A
8
Q
What is the p called in the formual for the initial call option price
A
The risk-neutral probability
9
Q
Describe the proof of the initial call option price
A
10
Q
According to the risk-neutral valuation approach, how is the initial call option price C0 calculated
A
