Binomial option pricing model

Definition:

An option pricing model in which the underlying asset can assume one of only two possible, discrete values in the next time period for each value that it can take on in the preceding time period.

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Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

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Variable cost

A cost that is directly proportional to the volume of output produced. When production is zero, the variable cost is equal to zero.

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