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Why is the Binomial method so popular for pricing derivatives in practice? Select one: For many exotic options, analytic formulae do not exist therefore the
Why is the Binomial method so popular for pricing derivatives in practice? Select one: For many exotic options, analytic formulae do not exist therefore the Binomial approach is a convenient approximation: Since risk neutral pricing is state of the art oldet techniques such as the Black Scholes analytic formula are obsolete. The Binomial approach makes assumptions about share price movements that are more realistic than the assumptions underlying the Black Scholes model The Black Scholes model only works for options written on stocks that do not pay dividends
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