1. Which of the following statements is FALSE?

A. A replicating portfolio is a portfolio of other securities that has exactly the same value in one period as the option.

B. By using the Law of One Price, we are able to solve for the price of the option as long as we know the probabilities of the states in the binomial tree.

C. The binomial tree contains all the information we currently know: the value of the stock, bond, and call options in each state in one period, as well as the price of the stock and bond today.

D. The idea that you can replicate the option payoff by dynamically trading in a portfolio of the underlying stock and a risk-free bond was one of the most important contributions of the original Black-Scholes paper. Today, this kind of replication strategy is called a dynamic trading strategy.

E. The techniques of the binomial option pricing model are specific to European call and put options.

F. We can summarize the payoffs for the Binomial Option Pricing Model in a binomial treea timeline with two branches at every date that represent the possible events that could happen at those times.

G. We define the state in which the stock price goes up as the up state and the state in which the stock price goes down as the down state. H. When using the Binomial Option Pricing Model, by the Law of One Price, the price of the option today must equal the current market value of the replicating portfolio.