The tree-based method is an easy-to-implement model for option pricing, and it can be used to value about any type of options (American options, barrier options, digital options, Asian options, etc).

In this tutorial video, I will implement the popular Cox, Ross, and Rubinstein binomial tree option pricing model via Excel and then VBA. To make things simple, I will be covering European call and put options.

The model can easily be extended to price American options by assessing whether early exercise is profitable at every node in the tree.