DEFINITION of 'Boolean Algebra'
A division of mathematics which deals with operations on logical values. Boolean algebra traces its origins to an 1854 book by mathematician George Boole. The distinguishing factor of Boolean algebra is that it deals only with the study of binary variables. Most commonly boolean variables are presented with the possible values of 1 ("true") or 0 ("false"). Variables can also have more complex interpretations, such as in set theory.
BREAKING DOWN 'Boolean Algebra'
Boolean algebra has application in finance through mathematical modeling of market activities. For example, research into the pricing of stock options involved the use of a binary tree to represent the range of possible outcomes in the underlying security. In this binomial options pricing model, the boolean variable represented an increase or a decrease in the price of the security.
This type of modeling was necessary because in American options, which can be exercised at any time, the path of security prices is just as important as the final price. The weakness of this model was that the path of a security's price had to be broken into a series of discrete time steps. Thus, the Black Scholes options pricing model provided a breakthrough in that it was able to price options under the assumption of continuous time. The binomial model is still useful for situations in which the Black Scholes cannot be applied.

Algebraic Method
A mathematical means of solving a pair of linear equations. Algebraic ... 
Black Scholes Model
A model of price variation over time of financial instruments ... 
Binomial Option Pricing Model
An options valuation method developed by Cox, et al, in 1979. ... 
Stochastic Volatility  SV
A statistical method in mathematical finance in which volatility ... 
Option Pricing Theory
Any model or theorybased approach for calculating the fair ... 
Black's Model
A variation of the popular BlackScholes options pricing model ...

Options & Futures
Breaking Down The Binomial Model To Value An Option
Find out how to carve your way into this valuation model niche. 
Investing Basics
Mathematics
These college classes will help you prepare for the working world  and stand out from your peers. 
Options & Futures
Binary Options
Binary options offer just two outcomes: all or nothing. Day trading with binary options can be easy and profitable resulting in high returns that are immediately paid out. 
Bonds & Fixed Income
ESOs: Using the Binomial Model
By David Harper On April 1, 2004, the Financial Accounting Standards Board (FASB) published a proposal on the new accounting treatment of employee stock options ESOs. The final rules will probably ... 
Options & Futures
A Guide To Trading Binary Options In The U.S.
What binary options are, how they work and where you can legally trade them in the U.S.? 
Options & Futures
Binary Options FAQs  Sponsored by Nadex
Many investors may not be familiar with binary options, but theyâ€™re actually quite easy to use. And they can play an important role in your investing strategy. Here are some of the more common ... 
Options & Futures
Common Misconceptions About Binary Options  Sponsored by Nadex
There are many misconceptions about binary options, so it is really important that traders understand exactly what they areand what they are notin order to use them effectively. 
Investing
Binary Options For CapitalProtectedÂ Investments
Binary options may sound complex, but they can be used to create capitalprotected investments. Here's how. 
Options & Futures
Using Decision Trees In Finance
These decisionmaking tools play an integral role in corporate finance and economic forecasting. 
Options & Futures
Introduction To Binary Options  Sponsored by Nadex
Binary options may sound complicated, but they're really not. In fact, they offer traders alternative ways to trade stock indices, commodities and currencieseven economic events. Say you think ...

What is the average return on equity for a company in the electronics sector?
Learn about the BlackScholes option pricing model and the binomial options model, and understand the advantages of the binomial ... Read Answer >> 
What is the history of binary options?
Discover the history of binary options trading, which is now one of the fastest growing investment market vehicles available ... Read Answer >> 
What's the difference between binary options and day trading?
Binary options and day trading are both ways to make (or lose) money in the financial markets, but they are different animals. ... Read Answer >> 
How is implied volatility for options impacted by a bearish market?
Learn why implied volatility for option prices increases during bear markets, and learn about the different models for pricing ... Read Answer >> 
What technical skills must one possess to trade options?
Learn about the technical skills required to trade options and how mathematical and computer science skills give you a better ... Read Answer >> 
What variables are most important when making a prediction through sensitivity analysis?
Explore sensitivity analysis and how this method considers different variables to determine a course of action based on statistical ... Read Answer >>