Consider a two-period binomial tree setting in which the up and down moves are given,respectively,by and .The risk-free gross rate of interest per time step is .Suppose there is a dividend paid after the first period of the tree. Let denote the value of a one-period call that is initially at-the-money.Let denote the values of two-period American and European calls,respectively,that too are initially at-the-money.
Which of the following statements is always true regardless of the specific parameter values?
A)
)
B)
)
C)
)
D)
)
Correct Answer:
Verified
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