In this paper we show how the mathematical programming
package Mathcad can be used to complement the
construction of a binomial option tree in Excel. A binomial
option tree is first constructed in Excel using standard
spreadsheet ‘cut and paste’ operations. The same binomial
tree is then constructed in Mathcad. We conclude that
spreadsheet construction of the tree provides students with
a sound concept of the underlying mechanics of the option
tree. Additionally, the Mathcad construction reinforces the
mathematical notation found in many option pricing texts
(e.g. summation signs and indices) and allows for the
construction of a more flexible lattice that may be easily
altered (e.g. the number of steps). In the process students
are provided with an understanding of how to construct
option trees in the increasingly important world of
computer algebra packages.