[my xls is here https://trtl.bz/2AruFiH] The binomial option pricing model needs: 1. A set of assumptions similar but not identical to those found in Black-Scholes; 2. A framework; i.e., risk-neutral valuation which allows us to infer the probability of an up-jump; 3. An assumption about asset dynamics, in this case that arithmetic returns are normally distributed; and 4. A valuation process which is two steps: FORWARD simulation produces terminal asset prices, then BACKWARD induction which returns the option price based on a series of discounted expected values.

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