American options can be valued using a binomial tree by: choose one)
A) Checking whether early exercise is optimal at all nodes where the option is in-the-money
B) Checking whether early exercise is optimal at the final nodes
C) Checking whether early exercise is optimal at the penultimate nodes and the final nodes
D) Increasing the number of time steps on the tree

Question

Quizplus · Accepted Answer

American options can be valued using a binomial tree by checking whether early exercise is optimal at all nodes where the option is in-the-money. This is because American options can be exercised at any time before expiration, so it's necessary to evaluate the possibility of early exercise at each step in the tree where the option has intrinsic value.

American Options Can Be Valued Using a Binomial Tree By