The binomial price will theoretically equal the Black-Scholes-Merton price under which of the following conditions?
A)when the number of time periods is large
B)when the option is at-the-money
C)when the option is in-the-money
D)when the option is out-of-the-money
E)none of the above

Question

Quizplus · Accepted Answer

The binomial price converges to the Black-Scholes-Merton price as the number of time periods becomes large. Therefore, as the number of time periods increases, the binomial price will approach the Black-Scholes-Merton price.

The Binomial Price Will Theoretically Equal the Black-Scholes-Merton Price Under