# Binomial Tree

*Quant & Pricing — Finicade finance glossary*

A pricing model that chops time into steps where the price can only go up or down, then works backwards from the payoff to today. Simple enough to teach by hand, yet it converges to Black–Scholes as the steps shrink.

**Also known as:** binomial model

**Related terms:** [Risk-Neutral Pricing](https://finicade.com/glossary/risk-neutral-pricing), [Replication](https://finicade.com/glossary/replication), [Black–Scholes Model](https://finicade.com/glossary/black-scholes)

Source: https://finicade.com/glossary/binomial-tree