is there a proper way out to determine the upper and lower limits of a binomial model ? or is it just speculation and personal preference ? more importantly is it any use to study the discrete models in terms of applications ?thnkx

QuoteOriginally posted by: ankitk is there a proper way out to determine the upper and lower limits of a binomial model ? or is it just speculation and personal preference ?If by upper/lower limits you mean the possible returns at each time step, they must be determined so they match the volatility input. Cox-Ross-Rubinstein assume that the product of them is 1, thus making the lattice recombinant. Quotemore importantly is it any use to study the discrete models in terms of applications ?Some highlights: suitable for path-independent early-exercise contracts, they are computationally fast.