A method of valuation that is based on the assumption that asset prices have binomial distributions. For example, binomial pricing values an option by assuming that over each discrete interval in time the price, S, of the underlying asset changes to either dS or uS, where u>R>d, where R is the (gross) risk-free interest rate. A portfolio of the underlying asset and the risk-free asset is constructed that has the same pay-offs as the option. The price of the option can then be inferred by imposing the absence of arbitrage possibilities.