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Investment/Financial Term - BINOMIAL MODEL

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BINOMIAL MODEL


A mathematical model used to price options. Generally used for American-style options, the model creates a binomial lattice to price an option, based on the stock price, strike price, days until expiration, interest rate, dividends, and the estimated volatility of the stock. One of the main differences from the Black Scholes Model is that it factors in the possibility of early exercise of the options.