Binomial and Black and Scholes Pricing models

The binomial and the Black and Schole models are option valuing models, the Binomial model involves determining the value of options using a tree like format whereby the value of the option is determined by the expiration time period of the option and volatility, for the Black and Schole model the value of options is determined by simply getting a derivative that helps get the discount rates of options. Binomial pricing model: The binomial pricing model was introduced by Ross, Cox and Rubinstein in 1979; it provides a numerical method, in which valuation of options can be undertaken. Application: This model breaks down the option into many potential outcomes during the time period of the option, this steps form a…

What information is required in a binomial experiment?

A binomial experiment makes use of the principles of a binomial distribution. The following things are therefore required in a binomial experiment: 1) n, which represents the number of trials, 2) p, which indicates the probability of success for any one trial, and 3) x, which is number of successes desired. Give an application in your chosen profession of the binomial experiment. In the field of Nursing, the binomial experiment can be used in predicting the binomial probability of a drugâ€™s success rate. Supposing that historical data show that 10% of a given population show an allergic reaction to a particular drug, and 60 persons are randomly selected to take part on a study for allergic reactions, a binomial experiment…