The one-step binomial model assumes that at the end of the option period,the call will have appreciated to S_uT = S₀u or depreciated to S_dT = S₀d.How is u calculated? A)1/d B)e^(σt^0.5) C)both 1/d and e^(σt^0.5) D)none of these options

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In the one-step binomial model, the up factor $u$ can be calculated in different ways depending on the specific assumptions of the model. One common approach is to set $u = \frac{1}{d}$, where $d$ is the down factor, implying that the up movement is the inverse of the down movement. Another approach uses the formula $u = e^{\sigma\sqrt{t}}$, where $\sigma$ is the volatility of the underlying asset and $t$ is the time to expiration. Both methods are used in practice, making option C correct.

The One-Step Binomial Model Assumes That at the End of the Option