Binomial Trees (FRM Part 1 2025 – Book 4 – Chapter 14)

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After completing this reading, you should be able to:
- Calculate the value of an American and a European call or put option using a one-step and two-step binomial model.
- Describe how volatility is captured in the binomial model.
- Describe how the value calculated using a binomial model converges as time periods are added.
- Explain how the binomial model can be altered to price options on: stocks with dividends, stock indices, currencies, and futures.
- Define and calculate delta of a stock option.

[kSree]

Why do you use 1 instead of euler^(rt) fir optuons on futures, while calculating probability of up move?

[abouhuraira]

How can we have this lesson using with Microsoft Excel ?

[dodgingdurangos]

I noticed there isn't a term for a bond or money. Is this captured somewhere in the formula?