I have some questions regarding pricing futures options and I just want to be sure that my thoughts are correct.
I am trying to price options on futures for american & european style.
In the latest case, I am using the Black Model.
When looking at the volatility of the contract Ito's lemma gives that the volatility of the future contract is the same as the volatility of the underlying (in the future contract). Is it correct?
Then if I want to use Black Model, I just need to compute the volatility of the futures' underlying.
Options on future are generally american. Then I am using a binomial tree to price my future contracts. Here again the volatility is then determined by the future underlying.
Is that correct?