# in the binomial model, the difference between the up and down factors best represents the: volatility of the underlying. moneyness

in the binomial model, the difference between the up and down factors best represents the: volatility of the underlying. moneyness of an option. pseudo probability.

### 1 thought on “in the binomial model, the difference between the up and down factors best represents the: volatility of the underlying. moneyness”

1. ThanhThu
Option(a) is correct. The volatility of the underlying is captured in the binomial model by the difference between the up and down factors.

### What is Binomial Model?

A binomial model describes the number of survivors, x, in n independent tests. Predetermined tests, statistically independent results for every test, and a constant survival probability throughout the tests are requirements. Based on the binomial distribution model, we can calculate the probability of observing a specified number of “successes” in the case of repeated processes (for example, in a set of patients).