Binomial trees to Black–Scholes

Start with a stock that can finish at $120 or $80, then build a call payoff from half a share and a loan. Zon asks questions, describes the diagrams, reads formulas and confirms the pricing argument with Coach.

Explore forecast p versus pricing q, no-arbitrage, backward valuation, converging tree prices and the risk-neutral lognormal endpoints. Nine paced audio scenes follow the interactive.

The opening example uses simple one-year interest; the refined tree uses continuous compounding. The lesson states the trading assumptions and explains why continuous replication requires rebalancing.

A recombining binomial tree shows successive up and down stock-price moves

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