Binomial options pricing model

The Binomial Options Pricing Model is a method used to estimate the value of an option by simulating possible future stock prices in sequential steps. It assumes that, over each period, the stock can either move up or down by certain factors. By working backward from future outcomes, weighted by probabilities, it helps determine the option’s fair current price. This approach provides a flexible way to model option value, especially when the underlying stock’s movements are uncertain, making it an important tool for traders and analysts to assess potential risks and rewards.