Binomial Tree — American Option

American Option

Price American options with early-exercise using backward induction on the binomial lattice.

Binomial Tree

American Option Parameters

Option Type

Call Put

Spot Price (S)

Strike Price (K)

Volatility (σ)

Risk-Free Rate (r)

Time to Maturity (T)

Dividend Yield (q)

Early exercise matters most for calls with high dividends or deep ITM puts.

AMERICAN

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EUROPEAN (BT)

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EARLY EX PREMIUM

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American vs European Price by Spot

Early Exercise Premium by Spot