Exam 21: Basic Numerical Procedures

The standard deviation of the values of an option calculated using 10,000 Monte Carlo trials is 4.5.The average of the values is 20.What is the standard error of this as an estimate of the option price?

A binomial tree prices an American option at $3.12 and the corresponding European option at $3.04.The Black-Scholes price of the European option is $2.98.What is the control variate price of the American option?

Which of the following is possible in a modified Cox,Ross,Rubinstein binomial tree?

What is the difference between valuing an American and a European option using a tree?

Which of the following is true?

Which of the following cannot be valued by Monte Carlo simulation

A European option on a stock with a known dollar dividend is valued by setting the stock price variable equal to the stock price minus the present value of the dividend in the Black-Scholes-Merton formula.A second price can be obtained using the tree building procedure in the chapter.Which of the following is true when a very large number of time steps are used in the tree?

Which of the following can be valued without using a numerical procedure such as a binomial tree?

How many different paths are there through a Cox-Ross-Rubinstein tree with four-steps?

When the stock price is 20 and the present value of dividends is 2,which of the following is the recommended way of constructing a tree?

Which of the following is true for u in a Cox-Ross-Rubinstein binomial tree?

What is the recommended way of making interest rates a function of time in a Cox,Ross,Rubinstein tree?

When we move from assuming no dividends to assuming a constant dividend yield,which of the following is true for a Cox,Ross,Rubinstein tree?

What is the recommended way of making volatility a function of time in a Cox,Ross,Rubinstein tree?

Which of the following is true?

The values of a stock price at the end of the second time step are $80,$100,$125.The corresponding values of an option are $0,$5,and $20 respectively.What is an estimate of gamma?

The chapter discusses an alternative to the Cox,Ross,Rubinstein tree.In this alternative,which of the following are true:

Which of the following describes the way that the parameters in a binomial tree are chosen?

Which of the following cannot be estimated from a single binomial tree?

How many nodes are there at the end of a Cox-Ross-Rubinstein five-step binomial tree?