DEFINITION of 'Trinomial Option Pricing Model'
An option pricing model incorporating three possible values that an underlying asset can have in one time period. The three possible values the underlying asset can have in a time period may be greater than, the same as, or less than the current value.
INVESTOPEDIA EXPLAINS 'Trinomial Option Pricing Model'
The trinomial option pricing model differs from the binomial option pricing model in one key aspect, which is incorporating another possible value in one periods time. Under the binomial option pricing model, it is assumed that the value of the underlying asset will either be greater than or less than, its current value. The trinomial model, on the other hand, incorporates a third possible value, which incorporates a zero change in value over a time period.
This assumption makes the trinomial model more relevant to real life situations, as it is possible that the value of an underlying asset may not change over a time period, such as a month or a year.

Gamma Pricing Model
An equation for determining the fair market value of a Europeanstyle ... 
Option
A financial derivative that represents a contract sold by one ... 
Option Pricing Theory
Any model or theorybased approach for calculating the fair ... 
Binomial Option Pricing Model
An options valuation method developed by Cox, et al, in 1979. ... 
Intrinsic Value
1. The actual value of a company or an asset based on an underlying ... 
Underlying
1. In derivatives, the security that must be delivered when a ...

How do I measure option liquidity?
An option is a financial instrument that gives the holder the right to purchase shares in a company at a certain set price ... Read Full Answer >> 
What is the utility function and how is it calculated?
In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >> 
How does a forward contract differ from a call option?
Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >> 
What are the main risks associated with trading derivatives?
The primary risks associated with trading derivatives are market, counterparty, liquidity and interconnection risks. Derivatives ... Read Full Answer >> 
How can an investor profit from a fall in the utilities sector?
The utilities sector exhibits a high degree of stability compared to the broader market. This makes it bestsuited for buyandhold ... Read Full Answer >> 
What is the difference between derivatives and options?
Options are one category of derivatives. Other types of derivatives include futures contracts, swaps and forward contracts. ... Read Full Answer >>

Options & Futures
Reducing Risk With Options
If you want to use leverage to your advantage, you must know how many contracts to buy. 
Options & Futures
Option PriceVolatility Relationship: Avoiding Negative Surprises
Learn about the pricevolatility dynamic and its dual effect on option positions. 
Economics
What's a Centrally Planned Economy?
A centrally planned economy is one where the government controls the country’s supply and demand of goods and services. 
Economics
What are Barriers to Entry?
A barrier to entry is any obstacle that restricts or impedes a company’s efforts to enter an industry. 
Investing Basics
Explaining Absolute Return
Absolute return refers to an asset’s total return over a set period of time. It’s usually applied to stocks, mutual funds or hedge funds. 
Investing Basics
How To Create Capital Protected Investment Using Options?
Does "CapitalProtection" guarantee in an investment product sound attractive? Wait! Here's how you can create a better one for yourself, at lowcost! 
Mutual Funds & ETFs
ETF Analysis: SPDR S&P 500 Trust
Find out more about the SPDR S&P 500 ETF Trust, the characteristics of the exchange traded fund and the suitability of investing in the fund. 
Options & Futures
How to Make Money by Trading Index Options
Index options are less volatile and more liquid than regular options. Understand how to trade index options with this simple introduction. 
Investing
4 Structured Product Types Wealthy Clients Love
Highnetworth investors find structured products appealing for a variety of reasons. Here's a look at four types. 
Mutual Funds & ETFs
ETF Analysis: Energy Select Sector SPDR
Find out more about the Energy Select Sector SPDR Fund, the top holdings of this exchangetraded fund and the characteristics of the fund.