When using the binomial pricing model to price an option, the volatility of the underlying asset's value is represented by the difference between the two possible future values of the underlying asset.

Question

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In the binomial pricing model, the volatility of the underlying asset's value is represented by the standard deviation of the possible future values of the underlying asset, which is calculated using the difference between the two possible future values.

When Using the Binomial Pricing Model to Price an Option