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I have a couple of questions to ask regarding the above and I hope you can help me out.
The option values obtained from both Binomial option pricing model and Monte Carlo simulation can be compared to the value obtained from Black-Scholes formula. In fact, the option prices for Monte Carlo converges to Black Scholes formula as the number of paths increases, and the Binomial OPM is a discrete time approximation to the continuous Black Scholes formula.
If that is the case, why do we still use both of these models to value options when we know Black Scholes formula can give us the option price? And also, are the assumptions for all three models the same?
Thanks.
The option values obtained from both Binomial option pricing model and Monte Carlo simulation can be compared to the value obtained from Black-Scholes formula. In fact, the option prices for Monte Carlo converges to Black Scholes formula as the number of paths increases, and the Binomial OPM is a discrete time approximation to the continuous Black Scholes formula.
If that is the case, why do we still use both of these models to value options when we know Black Scholes formula can give us the option price? And also, are the assumptions for all three models the same?
Thanks.