Binomial option pricing model and the risk neutral Qeustion

Binomial option pricing model and the risk neutral

Question # 1

Discuss differences between the binomial option pricing model and the risk neutral method of option pricing.

Question # 2

Explain how agency problems may lead to non value-maximizing motives for mergers. Discuss the various academic theories offered as the rationale for motives induced by the agency problem. Respond to at least two of your classmates’ postings.



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Question 1

Binomial option pricing model uses an iterative procedure that allows for the specification of nodes which occurs during the time span that occurs between the valuation and the options expiration reduces the possibilities of price change, assumes a perfectly efficient market and often shortens the duration of the option. The risk neutral valuation method is frequently used to value derivative securities in such a way that each share price is exactly equal to the discounted expectation of the share price under this measure…


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