Encyclopedia of Investment Terminology

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Binomial Options Model

The binomial options model works in that an option is measured in projections where it can be worth different values in different time periods. This includes specific periods of time in the future. For example, this model can measure an option at $20 and state that it can be woth $23 or $17 after one time period and then $25, $21, $19 or $15 after two time periods. This is a notable model in that it helps to illustrate risks involved with investments so that the investor can cut down on one’s risk level when investing. Overall it works to simply project potential prices at different times.

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