If the binomial model describes the real world,the combined actions of all investors will cause the market price to converge to the binomial price.

Question

Quizplus · Accepted Answer

This is true because the binomial model is based on certain assumptions and probabilities that represent the behavior of all investors in the market. Therefore, as investors react to new information and make trades, the market price should eventually converge to the binomial price that is calculated based on these assumptions and probabilities.

If the Binomial Model Describes the Real World,the Combined Actions