Exam: CH 12 Binomial method

Question 1

What is a risk neutral world?

Answer 1

• is a market in which all individuals are indifferent to risk. Investors require
  no compensation for risk. All stocks gain at the risk-free rate

Question 2

What is e Delta, ∆?

Answer 2

• the ratio of the change in the price of the stock option to the change in the
  price of the underlying stock