The two state OPM is so named because:
A) there is only two specific outcomes in the future period.
B) the probability of price increase equals the probability of a price decrease.
C) only two interest rates are used.
D) only two arbitrage positions can be established.

Question

Quizplus · Accepted Answer

The two-state option pricing model (OPM) is named as such because it assumes there are only two specific outcomes in the future period: the price of the underlying asset can either go up or go down.

The Two State OPM Is So Named Because