Abstract
Option pricing can be presented in a variety of ways to students learning the subject for the first time, ranging from solution of the Black Scholes formula to approximations using Binomial trees. This article shows how an Excel spreadsheet may be used to illustrate the principle of risk neutral pricing through the simulation of random share price paths through the nodes of Binomial trees. By observing such random path prices through a binomial tree, the particular features of different types of options may be more readily appreciated. The method is illustrated with an application to plain vanilla calls and puts, and extended to an analysis of barrier options.
Recommended Citation
(2026)
"Simulation of Binomial Trees for Exotic Option Pricing Using Excel,"
Journal of Economics and Finance Education: Vol. 15:
Iss.
1, Article 13.
Available at:
https://scholarship.rollins.edu/jefe/vol15/iss1/13
