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For Students · Binomial Option Pricing

Binomial Option Pricing for a rental property

Built for students learning it for a class or exam. See the concept move instead of memorizing formulas — and check your homework intuition. Simulate a rental property live below — adjust the inputs and watch it respond, right in your browser.

Binomial Option PricingLive

a lattice of possible futures

Controls

Presets

Spot price S

Strike K

Volatility σ

Time to expiry (yr)

Tree steps

The binomial model builds a tree of up and down moves, then works backward from expiry using risk-neutral probabilities to price the option today. Add more steps and it converges to the Black–Scholes value. Educational tool, not financial advice.

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Data Inspector

Call price$11.24

Up factor u1.133

Risk-neutral p0.509

Governing equation

p = \frac{e ^{r Δ t} - d}{u - d} = \frac{e ^{0.04 \cdot 0.250} - 0.882}{1.133 - 0.882} = 0.509, V_{0} = e^{- r Δ t} [p V_{u} + (1 - p) V_{d}] = $11.24

Reading this result: Near the money the price is almost all time value; it rises with volatility (σ = 0.25) and time (T = 1.0yr) because both widen the cone of possible ending prices.

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Frequently asked questions

Is this good for students?: Yes — this version of "Binomial Option Pricing for a rental property" is framed for students learning it for a class or exam. See the concept move instead of memorizing formulas — and check your homework intuition.
Do I need to install anything?: No. It runs in any modern browser, free, with no account required.