Binomial Option Pricing

Please 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.

Complete your 3- to 4-page response using Microsoft Word. Your well-written response should be formatted according to CSU-Global Guide to Writing and APA Requirements (Links to an external site.), with at least two external sources properly cited. Upload your completed work to the Week 6 Assignments page