Two-state option pricing model

Two-state option pricing model

A pricing equation allowing an underlying asset to assume only two possible (discrete) values in the next time period for each value it can take on in the preceding time period. Also called the binomial option pricing model.
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Cox, Ross, and Rubinstein (1979) and Rendleman and Bartter (1979) independently developed a two-state option pricing model, that is commonly called the binomial option pricing model.