• Boundary conditions were used to establish the minimum and maximum possible values of call and put options prior to the introduction of binomial tree and Black-Scholes pricing models.

  • The boundary conditions change depending on whether the option is US or European, as US options can be exercised before expiration.
  • The absolute minimum value of the option is zero, since the option cannot be sold for a negative amount of money.
  • The maximum value in the boundary condition is set to the current value of the underlying asset.