 Binomial options pricing model

The binomial options pricing model values a contingent claim on a two-outcome asset-price tree using risk-neutral probability and backward option pricing. Its underlying discrete-time binomial market distinguishes the market assumptions from the pricing procedure.

The Binomial Options Pricing Model (BOPM) is a widely used method for valuing options, which are financial derivatives that give the holder the right (but not the obligation) to buy or sell an underlying asset at a specified price before a specified expiration date. The model was introduced by Cox, Ross, and Rubinstein in 1979 and is based on a discrete-time framework.