Assignment: Binomial Option Pricing
Respond to the following questions while elaborating on your insight and providing external support:
1. Holding all else constant, if dividends increase, does the difference between American calls and puts increase or decrease? Why? What about the difference between European calls and puts?
2. Explain in a heuristic manner why option replication on a binomial tree is a "dynamic" strategy. Expand your thoughts by providing external support that helps to provide further insight into the use of binomial trees.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.