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How Does the Binomial Option Pricing Model Handle Early Exercise?

The binomial option pricing model (BOPM) handles early exercise by working backward from expiration. At each time step, it compares the option's value if exercised immediately with its value if held until the next step.

If the immediate exercise value is higher, that value is chosen, making it suitable for American options.

How Does the Early Exercise Feature Complicate the Pricing of American Options?
How Does Early Exercise Affect the Pricing of American Options?
How Does the Difference Affect the Valuation Models Used for Each Type?
What Is the Primary Advantage of Using a Binomial Model over Black-Scholes for Pricing?