The smaller the time periods used in the binomial model, the closer it will come to approximating the Black-Scholes' model price.

Question

Quizplus · Accepted Answer

This is true because as the time periods become smaller, the binomial model becomes more and more similar to the continuous model used in the Black-Scholes model. This is why the binomial model is often used as an approximation of the Black-Scholes model.

The Smaller the Time Periods Used in the Binomial Model