Q. Assume a call option’s strike price is initially equal to the price of its underlying asset. Based on the binomial model, if the volatility of the underlying decreases, the lower of the two potential payoff values of the hedge portfolio: decreases. remains ...Read more
Q. Assume a call option’s strike price is initially equal to the price of its underlying asset. Based on the binomial model, if the volatility of the underlying decreases, the lower of the two potential payoff values of the hedge portfolio:
- decreases.
- remains the same.
- increases.
Answer- option (2)
Please explain.
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why my answer is not matching? With icai solution 
In this solution, the value at 90% confidence level is taken as 1.65. In our notes, the value is taken as 1.28. Please clarify the value to be used in the exam.