Asked by Jackson Levine on Jul 08, 2024
Verified
In order for a binomial option price to approach the Black Scholes price, ________.
A) the number of subintervals must increase substantially
B) the volatility must be low
C) the probability of each subinterval needs to be similar to the stock's standard deviation
D) the interest rate needs to increase
Binomial Option Price
A mathematical model that is used to calculate the theoretical price of options using a binomial tree of possible price movements.
Black Scholes Price
A theoretical price model for European-style options that estimates the option's price given certain fixed financial variables.
Subintervals
Divisions of a larger interval into smaller ones, often used in mathematical analysis and computations.
- Gain an understanding of the Black-Scholes model and how it is applied to pricing options.
Verified Answer
Learning Objectives
- Gain an understanding of the Black-Scholes model and how it is applied to pricing options.
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