Economics, Econometrics and Finance
2 years ago

Binomial Tree Model Outperforms Black-Scholes in Pricing Index Options.

2 views
BCP Business & Management
Options Pricing Comparison between the Black-Scholes Model and the Binomial Tree Model: A Case Study of American Equity Option and European-style Index Option
Yawei Wu

Paper Summary

The article compares two models, Black-Scholes and Binomial Tree, for pricing options. They used market data to price Berkshire Hathaway's equity options and S&P 100 index options. The Binomial Tree model is better for European-style index options, while the Black-Scholes model is more effective for American equity options.

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