Definition of binomial model

the most commonly used lattice-based modelof option pricing. Unlike the black-scholes option pricing model (OPM), the binomial method divides the time from the option's grant date to the expiration date into small increments. Because the share price may increase or decrease during any interval, the binomial model takes into account how changes in price over the term of the option would affect the employee's exercise practice during each interval. The binomial model can also consider an option grant's lack of transferability, its forfeiture restrictions, and its vesting restrictions-even for options with more complicated terms such as indexed and performance- based vesting restrictions.