To price an option using the binomial pricing model, it is important that we know the probability that the asset will increase in value.

Question

Quizplus · Accepted Answer

The binomial pricing model uses risk-neutral probabilities, which do not require the actual probability of the asset increasing in value. Instead, it relies on the risk-free rate and the potential up and down movements of the asset.

To Price an Option Using the Binomial Pricing Model, It