In a binomial option model with three subintervals, the probability that the stock price moves up every possible time is ________.
A) 25%
B) 15.5%
C) 12.5%
D) 8%

Question

Quizplus · Accepted Answer

With three subintervals there are 23 = 8. possible paths to the four possible terminal stock prices. Three up moves would be one path out of the possible eight, so the probability of three up moves is 1/8 = 12.5%.

In a Binomial Option Model with Three Subintervals, the Probability