at expiration
at buying date
at exchange closing time
at exchange opening time
Answer is Right!
Answer is Wrong!
The correct answer is: A. at expiration.
In the binomial option pricing model, the second step is to define the range of possible values that the underlying asset can take on at expiration. This is done by creating a tree of possible outcomes, with each node in the tree representing a possible value of the underlying asset. The probability of each outcome is then calculated, and the value of the option is determined by taking the expected value of the payoff at each node.
The other options are incorrect because they do not represent the second step in the binomial option pricing model. Option value is not defined at buying date, exchange closing time, or exchange opening time.
Here is a more detailed explanation of each option:
- Option value is not defined at buying date. The value of an option is determined by the market, and it can change at any time. The buying date is simply the date on which the option is purchased, and it does not affect the option’s value.
- Option value is not defined at exchange closing time. The exchange closing time is the time at which the market closes for the day, and it does not affect the option’s value. The option’s value is determined by the market, and it can change at any time, including after the exchange has closed.
- Option value is not defined at exchange opening time. The exchange opening time is the time at which the market opens for the day, and it does not affect the option’s value. The option’s value is determined by the market, and it can change at any time, including before the exchange has opened.