Chapter 03 · Section 3.1
Binomial Pricing
The binomial model is an options pricing model which was developed by William Sharpe in 1978. Today, one finds a large variety of pricing models which differ according to their hypotheses or the underlying instruments upon which they are based (stock options, currency options, options on interest rates).
The binomial options pricing model evaluates only European options. Among the following statements, select those which are correct.
a) At expiration, the value of a call option will be equal to a value
b) At expiration, the value of a put option will be equal to a value
c) A european option is not exercisable until expiration.
d) A european option can be exercised at any time until its expiration date.
e) a, b and c
At expiration, the option may or may not have intrinsic value. Compare the price of the stock with the exercise price.