When the number of time periods in a binomial model is large,what happens to the binomial probability of an up move?
A)it approaches 1.0
B)it approaches zero
C)it fluctuates without pattern
D)it converges to 0.5
E)none of the above

Question

Quizplus · Accepted Answer

The binomial probability of an up move converges to 0.5 as the number of time periods in a binomial model increases, reflecting the assumption of a fair coin toss where the probability of an up or down move becomes equally likely.

When the Number of Time Periods in a Binomial Model