Binomial Trees - European vs American Options

In this video we look at the difference between American and European options when pricing them. We first look at an exercise for a European option and then compare it with an American option.

Key takeaways: American options can be exercised early, however European options can't be exercised early. This means that for an American option, we need to look at whether it's optimal to exercise the option earlier than the last period. Everything else (probability, last period option prices and stock prices) stays the same for both cases.

Timestamps:

0:00 Introduction
0:50 European Put Option Example
12:20 American Put Option Example