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Problems of binomial options pricing Model

If we want to find the price of the option using Binomial Model,We need 1)Risk-free rate of interest 2)The possible share-price moves 3)Time period ->Risk free rate is the market interest rate, ->Time period is depending on option expiry,, either 1month,3 month or 6 months. ->But the most crucial is possible share price moves, it is very difficult to predict the change of price volatility. To overcome this, we need to divide time up into many small steps. As steps in time become shorter and shorter, discrete time will tend towards continuous time and the jumps or falls in share prices in each period will become infinitesimally small. For reasonably accurate results, the time to maturity should be divided into at least 50 steps. As we move along the binomial tree hedge ratio changes i.e. dynamic hedge needs to be rebalanced. To overcome these difficulties, we go for

The Black-Scholes Equation

Because it is an analytical solution (I.e. one-step) and therefore more elegant and computationally much more efficient. Black-Scholes makes one additional assumption that returns on assets are normally distributed.