Options: The binomial model for European Options

Question 1

What is the one-period binomial model equation in a generalized form (European option)?

Answer 1

f = e^-rt * [pf_u + (1-p) * f_d]

Where p = (e^rt - d)/(u-d), u is the multiplier which makes u * S₀ equal to f_u, d is the multiplier which makes d * S₀ equal to f_d, and r is the risk-free rate. P and 1-p are risk-neutral probabilities/

Question 2

What is the multiperiod binomial model tree (European options)?

Answer 2

Check options slide, 2a - The binomial model for European options, slide 16