Binomial tree option pricing does not depend on underlying drift rate, hence, is independent to investors’ risk preference.
True
False
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.
Further, I would like to request your valuable feedback on the submitted answer. Kindly let me know in case you would like to have any changes made in terms of any adjustments, format changes or disclosures to further enhance the quality and help me in serving you better. Should you have any queries regarding this answer, please let me know.
Get Answers For Free
Most questions answered within 1 hours.