Binomial model

The Binomial Model Part 2: Trees, Greeks, and the Continuous Limit

In Part 1 we covered the intuition behind the binomial model: delta hedging, risk-neutral pricing, and why probabilities do not matter for option values. Now we get to the practical side. How do you actually build a binomial tree, compute option prices, estimate Greeks, handle American options, and connect everything back to Black-Scholes?

The Binomial Model Part 1: Building Intuition for Option Pricing

Chapter 15 of Wilmott’s book introduces the binomial model, and honestly it might be the single most important chapter for building intuition about how option pricing actually works. Forget stochastic calculus for a moment. This model uses nothing more than basic arithmetic, and yet it arrives at exactly the same answers as Black-Scholes.

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