The correct answer is: A. equalize domain of payoff
In the binomial approach of option pricing model, the fourth step is to create a binomial tree. A binomial tree is a model that represents the possible outcomes of an investment over time. The tree is created by starting with a single node at the bottom, which represents the current state of the investment. The tree is then divided into two branches, one for each possible outcome of the investment. The branches are then divided into two more branches, and so on, until the tree reaches a terminal node at the top, which represents the possible outcomes of the investment at the end of the time period.
The domain of payoff is the set of all possible payoffs that the investment can have. In the binomial approach, the domain of payoff is equalized by setting the payoff at each terminal node to the maximum of the payoffs at the two nodes below it. This ensures that the tree is consistent with the assumption that the investment is a fair game.
The other options are incorrect because they do not represent the fourth step in the binomial approach of option pricing model. Option B, equalize ending price, is the second step in the model. Option C, riskless investment, is the third step in the model. Option D, high risky investment, is not a step in the model.