What Is the Binomial Option Pricing Model? ▴ Learn

What Is the Binomial Option Pricing Model?

The binomial option pricing model is a simplified framework used to value options. It assumes that the price of the underlying asset can only move to one of two possible prices (up or down) during a single time period.

By extending this over multiple periods, it can approximate the option's value and is particularly useful for pricing American options because it can incorporate the possibility of early exercise.

How Does the Black-Scholes Model Handle the Early Exercise Feature of American Options?

How Does the Binomial Tree Model Approximate the Continuous Time of the Black-Scholes Model?

How Does the Black-Scholes Model Account for Market Liquidity in Option Pricing?

Why Is the Binomial Option Pricing Model Often Used for American Options Instead of Black-Scholes?