Binomial Option Pricing Model: Simple Valuation
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Binomial Option Pricing Model: Simple Valuation

Intuition Publishing
Updated Sep 24, 2020

We describe the process of pricing a call option using a binomial tree with four time intervals, show how this procedure is amended to price a simple put option, and then discuss the role of the binomial option pricing method in the valuation of American-style options. We finish up with an example that demonstrates the pricing of an American-style put option using a four-step binomial tree.