Which of the following statements about the binomial model is incorrect?
A)it converges to the Black-Scholes-Merton model
B)it can accommodate early exercise
C)it allows only two stock prices at expiration
D)it can be extended to a large number of time periods
E)none of the above

Question

Quizplus · Accepted Answer

The statement that the binomial model allows only two stock prices at expiration is incorrect. The model can accommodate multiple stock prices at expiration, depending on the number of time periods and the size of the upward and downward movements.

Which of the Following Statements About the Binomial Model Is