easy · FRM Part 1 Valuation and Risk Models
What is the primary advantage of using a binomial tree over the Black-Scholes-Merton formula in practice?
- It demands far less computation for pricing complex, path-dependent options
- It can easily value options with early-exercise features, such as American options.
- It yields the exact closed-form price of the option using only a single time step
- It needs fewer input parameters overall than the Black-Scholes-Merton formula does
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