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Building a binomial tree

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Definition of Building a binomial tree

Building A Binomial Tree Image 1

Building a binomial tree

For a binomial option model: plotting the two
possible short-term price-changes values, and then the subsequent two values
each, and then the subsequent two values each, and so on over time, is known
as “building a binomial tree.” See binomial model.



Related Terms:

Binomial model

A method of pricing options or other equity derivatives in
which the probability over time of each possible price follows a binomial
distribution. The basic assumption is that prices can move to only two values
(one higher and one lower) over any short time period.


Binomial option pricing model

An option pricing model in which the underlying asset can take on only two
possible, discrete values in the next time period for each value that it can take on in the preceding time period.


Building

The cost of buildings owned by the company.


Decision tree

Method of representing alternative sequential decisions and the possible outcomes from these decisions.


decision tree

Diagram of sequential decisions and possible outcomes.



Street

Brokers, dealers, underwriters, and other knowledgeable members of the financial community; from
Wall Street financial community.


Street name

Describes securities held by a broker on behalf of a client but registered in the name of the Wall Street firm.


Building A Binomial Tree Image 2

Wall Street

Generic term for firms that buy, sell, and underwrite securities.


Wall Street analyst

Related: Sell-side analyst.



 

 

 

 

 

 

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