CoboCards App FAQ & Wishes Feedback
Language: English Language
Sign up for free  Login

This flashcard is just one of a free flashcard set. See all flashcards!

All main topics / Finance & Investment / Derivatives / Derivatives
6.Which of the following describes how American options can be valued using a binomial tree?
A.Check whether early exercise is optimal at all nodes where the option is in-the-money
B.Check whether early exercise is optimal at the final nodes
C.Check whether early exercise is optimal at the penultimate nodes and the final nodes
D.None of the above

Answer: A

For an American option we must check whether exercising is better than not exercising at each node where the option is in the money.  (It is clearly not worth exercising when the option is out of the money)

New comment
Flashcard info:
Author: CoboCards-User
Main topic: Finance & Investment
Topic: Derivatives
Published: 27.10.2015




Forgot password?
Deutsch  English