Financial Risk Manager Part 1
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models to compare and contrast their inputs and assumptions. In comparing the two models, which of the following statements is correct?
models to compare and contrast their inputs and assumptions. In comparing the two models, which of the following statements is correct?
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A
The BSM model uses an underlying asset's implied volatility as an input but the binomial tree approach uses its historical volatility.
B
The binomial tree approach, but not the BSM model, assumes that the expected return from the underlying asset is the risk-free rate of interest.
C
In the binomial tree approach, delta is equal at each node since the probabilities of the price moving up or down during a period are constant and equal for both the underlying asset and the option.
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