In the binomial model,if a call is overpriced,investors should sell it and buy stock.

Question

Quizplus · Accepted Answer

In the binomial model, if a call is overpriced, the investor can sell it and buy stock to make a risk-free profit. This is because if the call is overpriced, the stock price is lower than the call price, so buying the stock and exercising the call will result in a profit. Therefore, the investor should sell the overpriced call and buy the stock.

In the Binomial Model,if a Call Is Overpriced,investors Should Sell