What does the binomial option calculator do?
It estimates theoretical call and put option values with a Cox-Ross-Rubinstein binomial tree. The calculator supports both European options and American options that may be exercised early.
What inputs are needed for the binomial option model?
You need the underlying asset price, strike price, time to maturity, risk-free rate, dividend yield, volatility and number of time steps. In custom mode, you can enter the up and down factors directly.
When should I use a binomial model instead of Black-Scholes?
A binomial tree is useful when early exercise matters, especially for American-style options. Black-Scholes is faster for standard European options, while the binomial model is more flexible for discrete time steps and early-exercise checks.
How many time steps should I use?
More time steps usually improve the approximation, but they also require more calculation. A moderate value such as 50 or 100 steps is often enough for quick estimates; higher step counts can be useful when comparing sensitive inputs.
What is the risk-neutral probability?
The risk-neutral probability is the up-move probability used to discount expected option payoffs in the binomial tree. It is derived from the risk-free rate, dividend yield, time step and the up and down factors.
Does the calculator show both call and put values?
Yes. It calculates call and put prices, compares European and American values, shows the early-exercise premium, and previews the underlying stock tree and selected option tree.