Binomial option pricing example excel
No-arbitrage means that markets are efficient, and investments earn the risk-free rate of return. They both agree on expected price levels in a given time frame of one year, but disagree on the probability of the up move and down move. My name is Hung. In reality the company hardly changes its valuation on a day-to-day basis, but the stock price and its valuation change every second. All cells highlighted with a light blue color can be manipulated directly here to model alternative distributions and outcomes. For example, the option prices estimated using the binomial model with 1, steps in cells K A binomial tree represents the different possible paths a stock price can follow over time.