- CFA Exams
- CFA Level I Exam
- Study Session 14. Derivatives
- Reading 38. Valuation of Contingent Claims
- Subject 2. Two-Period Binomial Model
CFA Practice Question
In general, the expectations approach can be used to value ______.
B. European-style options only
C. both American-style and European-style options
A. American-style options only
B. European-style options only
C. both American-style and European-style options
Correct Answer: B
This is because for American-style options, early exercise influences the option values and hedge ratios as one works backward through the binomial tree.
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