Binomial options pricing model

In finance, the binomial options pricing model (BOPM) provides a generalizable numerical method for the valuation of options. Essentially, the model uses a "discrete-time" (lattice based) model of the varying price over time of the underlying financial instrument, addressing cases where the closed-form Black–Scholes formula is wanting, which in general does not exist for the BOPM.^[1]

The binomial model was first proposed by William Sharpe in the 1978 edition of Investments (ISBN 013504605X),^[2] and formalized by Cox, Ross and Rubinstein in 1979^[3] and by Rendleman and Bartter in that same year.^[4]

For binomial trees as applied to fixed income and interest rate derivatives see Lattice model (finance) § Interest rate derivatives.