Explanation:
Correct answer: False
Compound options are not limited to numerical/binomial methods. While binomial or other numerical methods can be used, some compound options can also be valued with analytical closed-form methods under specific assumptions. A classic example is the Geske formula for certain compound options.
So the statement is too absolute because it says the option must be valued numerically rather than analytically.
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Q-13.1. P2.T5.13. Compound options. In regard to compound options is each the following TRUE or FALSE? A compound option must be valued with a binomial “simulation” (numerical) method rather than an analytical-type method.
A
True
B
False
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