PRMIA Exam 8002 Topic 2 Question 48 Discussion

Actual exam question for PRMIA's Mathematical Foundations of Risk Measurement :II exam

Question #: 48
Topic #: 2

[All Mathematical Foundations of Risk Measurement :II Questions]

Consider a binomial lattice where a security price S moves up by a factor u with probability p, or down by a factor d with probability 1 - p. If we set d > 1/u then which of the following will be TRUE?

AThe lattice will not recombine

BThe probability of an up move will not be constant

CThere will always be a downward drift in the lattice

DNone of the above

Show Suggested Answer

Suggested Answer: D

by Teddy at Aug 01, 2022, 07:04 AM

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