The binomial option pricing model approximates the price of an option obtained using the Black-Scholes option pricing model as the number of subintervals increases.

Question

Quizplus · Accepted Answer

The binomial option pricing model is an alternative to the Black-Scholes option pricing model, particularly useful for options with early exercise features or when there are dividends. It uses a series of discrete time steps to model the evolution of the underlying asset and approximates the Black-Scholes option price as the number of those time steps increase. Therefore, the statement is true.

The Binomial Option Pricing Model Approximates the Price of an Option