Which one of these statements is true?
A)The Black-Scholes model is most applicable to complex situations.
B)The binomial model is limited to a two-period time sequence.
C)The binomial model is limited to ten time intervals for any single analysis.
D)The binomial model is basically equivalent to the Black-Scholes model when there is a single time interval.
E)The Black-Scholes model is simpler to use,but for complex situations,the binomial model is preferred.

Question

Quizplus · Accepted Answer

The Black-Scholes model is known for its simplicity and is widely used for pricing European options. However, for more complex financial derivatives or situations where assumptions of the Black-Scholes model do not hold (e.g., American options, which can be exercised before expiration), the binomial model is preferred due to its flexibility in handling a variety of conditions and its ability to model the option price at each point in time until expiration.

Which One of These Statements Is True