In this Refresher Reading, learn how to value a derivative using a one-period binomial model and describe the concept of risk neturality in derivatives ...

It assumes that an underlying asset's value will change to one of two possible values over a period: an up move or a down move.

2 янв. 2023 г. · The one-period binomial model gives the underlying asset values in one year, where the option value is defined as a function of the underlying value.

The risk-free rate, the volatility of the price of the underlying, and the current asset price are three of the required variables needed to value an option ...

We can use the risk-free rate to value an option with a one-period binomial model because: (A) combining options with the underlying asset in a specific ratio ...

A model with two possible outcomes is a binomial model. We start with the underlying at S 0 and let the price move up to S 1 + and down to S 1 –.

In a one-period binomial model, the risk-neutral probabilities are determined only by the risk-free rate over the life of the option and the underlying asset's ...

In finance, the binomial options model provides a generalisable numerical method for the valuation of options. The model differs from other option pricing ...

A one-period binomial model can be constructed based on replication and no-arbitrage pricing, without regard to the probabilities of an up-move or a down-move.

This learning module covers: How to value a derivative using a one-period binomial model; The concept of risk-neutrality in derivatives pricing. 2. Binomial ...