The Binomial Model will generate a value for a European option on a nondividend paying stock that is very close to that generated by the Black Scholes Merton Model when:

• the option is neither deep in-the-money or deep out-of-the-money
• the option has a time to expiration of less than one year
• the volatility of the stock price exceeds the risk free rate
• the time to expiration is divided into a very large number of small intervals
• the annual volatility of the stock price is less that 30%