The binomial option pricing model and the Black and Scholes model are similar because they are both discrete models.

Question

Quizplus · Accepted Answer

The binomial option pricing model is a discrete model because it breaks down the time to expiration into potentially a very large number of discrete time intervals. On the other hand, the Black-Scholes model is a continuous model, as it assumes the stock price follows a continuous geometric Brownian motion.

The Binomial Option Pricing Model and the Black and Scholes