Increasing the number of intervals in the binomial model causes the price shift parameters to change.New estimates are related to:
A)the standard deviation of the underlying asset.
B)the up state multiplier equals the standard deviation divided root n.
C)the number of intervals in a year.
D)All of the above.
E)Increase in the number of intervals in a binomial model does not effect the price shift
Parameters.

Question

Quizplus · Accepted Answer

Increasing the number of intervals in the binomial model will increase the number of steps in the tree and will affect the price shift parameters. The up state multiplier equals the standard deviation divided by the square root of the number of intervals in a year, and as the number of intervals increases, the standard deviation will decrease as the time intervals become smaller. Therefore, all of the options are affected by an increase in the number of intervals in a binomial model.

Increasing the Number of Intervals in the Binomial Model Causes