We implement a Rubinstein-type (1994) implied binomial tree using an Excel spreadsheet, but without using VBA (Visual Basic Application). We demonstrate both the optimization needed to generate implied ending risk-neutral probabilities from a set of actual option prices and the backwards recursion needed to solve for the entire implied tree. By using only standard Excel spreadsheet functions, and not resorting to VBA, this complicated option pricing technique is now immediately transparent to academics, students, and practitioners alike. The intuition gained from our simple spreadsheet can be applied directly to the estimation of more complicated implied trees using more advanced software. Our spreadsheet-based implementation can be used in the classroom at the advanced undergraduate level with minimal preparation.

Document Type


Publication Date

Fall 2006

Publisher Statement

Copyright © 2006 Financial Education Association. This article first appeared in the Journal of Financial Education 32 (Fall 2006): 37-54.

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