Question: In the binominal pricing model, the standard deviation or sigma is used to measure volatility. Conceptually, why is this used? A single standard deviation does

In the binominal pricing model, the standard deviation or sigma is used to measure volatility.

Conceptually, why is this used? A single standard deviation does not capture all possible outcomes and in reality the volatility of returns could be larger than one standard deviation (i.e sigma).

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Hello, I would like a presentation to be made for 2 sections from the attached article! DOES THE CHOICE OF EXCHANGE RATE REGIME AFFECT THE ECONOMIC GROWTH OF DEVELOPING COUNTRIES? Glauco De Vita...

Hi Rahul! I want your advice in suggesting a portfolio of mutual fund for investment of my retirement fund. Last year, when I retired, I invested the full amount in a balanced fund. As it was a...

I am working on a homework problem and am stumped on part B. Kim hotels is interested in developing a new hotel in seoul. The company estimates that the hotel would require an initial investment of...

Please find attached assignment and see if you can help me in that and provide me the main points (in the article of spencer and web (2015) as attached) that need to be criticized, also I need an...

Week 1 Lecture 1 Class Approach to Statistics Statistics is basically a set of tools that allow us to get information out of data sets (we will get to the more formal definition below). As such, it...

I need your help with this: Can you please quote from the attached chapters / resource if possible? Corporations often use different costs of capital for different operating divisions. Using an...

SEE "DOCUMENT 1" FOR CRITERIA 2 "DOCUMENT 2" FOR CRITERIA 4 You are to write a 3 to 4 page paper following APA rules for the title page, citations and appropriate references within the body of the...

SEE "DOCUMENT 1" FOR CRITERIA 2 "DOCUMENT 2" FOR CRITERIA 4. You are to write a 2 to 4 page paper following APA rules for the title page, citations and appropriate references within the body of the...

SEE "DOCUMENT 1" FOR CRITERIA 2 "DOCUMENT 2" FOR CRITERIA 4 You are to write a 3 to 4 page paper following APA rules for the title page, citations and appropriate references within the body of the...

Paymaster Enterprises has arranged to finance its seasonal working-capital needs with a short-term bank loan. The loan will carry a rate of 12 percent per annum with interest paid in advance...

An experiment, where a value of x was varied and a value of y was measured, gave the following pairs of data (xi, Yi): (0, 1.3), (1,2.24), (2,4.5), (3,5.4), (4,8.8). The fitting function f(x) =...

All of the following regarding payroll checks is correct except Group of answer choices access to payroll checks should be restricted. payroll checks should be drawn on the organization's regular...

Draw a class diagram and its relationship based on the following statements. You can use any UML tool/software to represent your class diagram. Do NOT copy and paste your diagram, use the attachment...