The correct answer is: C. equalize domain of payoff.
The binomial approach to option pricing is a method of pricing options that uses a tree-like structure to represent the possible outcomes of the underlying asset. The first step in the binomial approach is to create a tree with two branches for each node, one for each possible outcome of the underlying asset. The second step is to calculate the probability of each outcome. The third step is to calculate the payoff for each outcome. The fourth step is to calculate the expected payoff for each node. The fifth step is to calculate the option price by discounting the expected payoff back to the present value.
The domain of a payoff function is the set of all possible values that the payoff can take on. In the binomial approach, the domain of the payoff function is the set of all possible prices of the underlying asset. The third step in the binomial approach is to equalize the domain of the payoff function. This means that the payoff for each outcome must be calculated for the same set of possible prices of the underlying asset. This is done by calculating the payoff for each outcome at the midpoint of the price range for each node.
The other options are incorrect because they do not represent the third step in the binomial approach. Option A is incorrect because the beginning price is not used in the binomial approach. Option B is incorrect because the range of payoffs is not used in the binomial approach. Option D is incorrect because the ending price is not used in the binomial approach.