Binomial Option Pricing Model: Basics
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Binomial Option Pricing Model: Basics

Updated Jun 23, 2024

What you'll learn

  • We describe the basics of pricing options using the binomial tree by discussing up and down states at discrete time intervals and demonstrate how a binomial tree is constructed. we then look at extending the number of nodes on a binomial tree, and finish
Course Description

Binomial trees can be used to price options when the Black-Scholes and other continuous-time approaches cannot be applied. We describe the basics of pricing options using the binomial tree by discussing up and down states at discrete time intervals and demonstrate how a binomial tree is constructed. We then look at extending the number of nodes on a binomial tree, and finish up by looking at the principle of risk neutrality and its role in calculating price probabilities.