The Binomial-Tree (Option-Pricing)

The binomial-tree is a graphical representation of the possible price development regarding an option over different time periods. For example, we could analyze an option that expires in two months by evaluating its intrinsic value after each month. Options are usually priced based on the Black Scholes model (will be discussed in this course), however, the binomial tree is still important to understand. It will help you to have a better understanding of option pricing.