D. M. Chance. An Introduction to Derivatives and Risk Management, 6th ed.. Ch. 4: 2. Important Concepts in Chapter 4. The concept of an option pricing modelThe one- and two-period binomial option pricing modelsExplanation of the establishment and maintenance of a risk-free hedgeIllustration of how early exercise can be capturedThe extension of the binomial model to any number of time periodsAlternative specifications of the binomial model.