Which of the following factors is most likely to impact the pricing of a European put option using binomial model?

A. The magnitude of up move and down move.
B. The probability of up move and down move.
C. The probability distribution of the price of underlying at expiration

Correct Answer: A

The magnitude of up move (U) and down move (D) impact the pricing of options using Binomial model. The probabilities of up move and down move do not impact the pricing as the pricing is based on the risk-neutral probabilities. The Binomial model assumes that the price can take only two values at expiration. So, the probability distribution of the stock is also not needed.