Question

Binomial tree option pricing does not depend on underlying drift rate, hence, is independent to investors’...

Binomial tree option pricing does not depend on underlying drift rate, hence, is independent to investors’ risk preference.

True

False

Homework Answers

Answer #1

In binomial tree option pricing we need to worry about risk premium and expected return. Thus, drift rate matter for the option valuation. Hence the above statement is false.

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