Question

Why Binomial option price model and Black-Scholes model give different results?

Which one is better to use for the option valuation and why?

Answer 1

Answer-

The binomial option pricing model uses an iterative technique, taking into account the determination of hubs, or focuses as expected, during the time length between the valuation date and the option's expiration date.

With binomial option value models, the assumptions are that there are two potential outcomes, henceforth the binomial aspect of the model. With a pricing model, the two outcomes are a go up, or a descend. The significant bit of leeway to a binomial option pricing model is that they're mathematically basic. However these models can get unpredictable in a multi-period model.

As opposed to the Black-Scholes model, which gives a mathematical outcome dependent on inputs, the binomial model takes into account the estimation of the benefit and the option for various periods alongside the scope of potential outcomes for every period.

The Black Scholes model, otherwise called the Black-Scholes-Merton (BSM) model, is a mathematical model for pricing an options contract. Specifically, the model gauges the variety after some time of monetary instruments. It accepts these instruments, (for example, stocks or fates) will have a lognormal conveyance of costs. Utilizing this suspicion and considering in other significant factors, the condition determines the cost of a call option.

The Binomial option value model is better option to use because  it may be utilized to precisely value American options. This is on the grounds that with the binomial model it's conceivable to check at each point in a choice's life for the chance of early exercise. It separates the chance to lapse into conceivably an enormous number of time stretches, or steps.