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Binomial model


A model for pricing tradable call options. This model option values from a set of recursive equations.

The binomial model is more versatile than the Black-Scholes model. This versatility facilitates incorporation of early exercise and additional features of stock options into option valuation.

See

John C. Cox, Stephen A. Ross, and Mark Rubinstein, 1979, Option Pricing: A Simplified Approach, Journal of Financial Economics 7, 229-263

and

Richard J. Rendleman and Brit J. Bartter, 1979, Two-state option pricing. Journal of Finance 34, 1093-1110.


Steven Huddart
Smeal College of Business, Penn State University, University Park, PA 16802-3603 USA
(814) 865-0041
(814) 863-8393 fax
huddart@psu.edu
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was last updated on Fri, Dec 16, 2016.
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