TL;DR
Two-Step Binomial Tree Option Pricing: A canonical quantitative trading interview question at intermediate difficulty. Commonly asked at Optiver, SIG, IMC, Citadel Securities, Jane Street.
By Valenke Exam Prep Team·Last updated 2026-06-01
intermediateGame Theory & Strategy
Two-Step Binomial Tree Option Pricing
Asked at: Optiver, SIG, IMC, Citadel Securities, Jane Street
Problem
A stock is at . Each period, it goes up by factor or down by factor . The risk-free rate is per period. A European put has strike and expires in 2 periods.
(a) Build the two-step binomial tree for the stock and the put.
(b) Find the risk-neutral probability .
(c) Price the put by backward induction.
Related concepts
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