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❍ and we use these period 1 values to ﬁnd the time 0 call price The price of the call is 14.62. 15.2 The Binomial Formula and the Black Scholes Model
The pricing formula that this produces when the number of periods increases to
say is the so-called binomial option pricing model. It would not be appropriate
to write down the -period formula here. It would be in a specialized options
or advanced corporate ﬁnance text. For those interested in it, let us merely note
that the numbers one produces with the binomial pricing formula are almost
identical to those of the famous Black-Scholes model. Of course, this assumes
that one picks and in a way that is related to the stock’s volatility (as we
did in Chapter 12). The volatility is the single most important parameter in the
Black-Scholes formula. 138 Multiple Periods in the Binomial Option Pricing Model 15.3 Early Exercise of Puts in the Binomial Model
With binomial trees, it is easy to determine early ex...
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This document was uploaded on 02/15/2014 for the course BEM 103 at Caltech.
- Fall '08