Binomial Options Pricing Model Explained

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In this video, we'll explore the Binomial Options Pricing Model. This is a very simple model that demonstrates the basics behind derivatives pricing.

It requires only some basic arithmetic - there is absolutely no stochastic calculus or anything complicated like that.

But at the same time, it clearly demonstrates many of the fundamental concepts within quantitative finance, and it can even be used to derive the Black-Scholes formula.

In this video, I’ll present the basics behind the model and we’ll use it to price an actual call option.

00:00 Introduction to Binomial Model
01:33 Constructing a Binomial Tree
06:39 Creating a Hedged Portfolio
10:59 Comparison with Real-life Probabilities
15:06 Conclusion

If you have any questions or suggestions, feel free to let me know. Thank you for watching!