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Comparison: Binomial model and Black Scholes model

1 Department of Mathematics and Actuarial Science, B S Abdur Rahman Crescent University, IN
2 Department of Management Studies, B S Abdur Rahman Crescent University, IN

The Binomial Model and the Black Scholes Model are the popular methods that are used to solve the option pricing problems. Binomial Model is a simple statistical method and Black Scholes model requires a solution of a stochastic differential equation. Pricing of European call and a put option is a very difficult method used by actuaries. The main goal of this study is to differentiate the Binominal model and the Black Scholes model by using two statistical model - t-test and Tukey model at one period. Finally, the result showed that there is no significant difference between the means of the European options by using the above two models.
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Keywords European options; Binominal model; Black Scholes model; t-test; Tukey model

Citation: Amir Ahmad Dar, N. Anuradha. Comparison: Binomial model and Black Scholes model. Quantitative Finance and Economics, 2018, 2(1): 230-245. doi: 10.3934/QFE.2018.1.230

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