One key difference between the Black and Scholes (B&S)option pricing model and the binomial model is that the B&S model assumes the ____ is known whereas the binomial model does not.

Question

Quizplus · Accepted Answer

The Black and Scholes model assumes that the standard deviation of the underlying asset is known, whereas the binomial model does not make such an assumption. Rather, the binomial model allows for a range of possible outcomes for the underlying asset's price at expiration, and calculates the option price based on the probabilities of those outcomes. Therefore, the best choice is E.

One Key Difference Between the Black and Scholes (B&S)option Pricing