*Correspondence author, George Washington University, 2023 G Street, Room 530, Washington, DC 20052; e-mail: jabbour@gwu.edu Received July 2000; Accepted March 2001 ■ George M. Jabbour is an Associate Professor at George Washington University in Washington, DC. ■ Marat V. Kramin is a Financial Engineer in the Fannie Mae Portfolio Strategy Department of Fannie Mae, Washington, DC. ■ Stephen D. Young is a Vice President at Merrill Lynch Investor Capital Strategies Group, New York City. The Journal of Futures Markets, Vol. 21, No. 11, 987–1001 (2001) © 2001 by John Wiley & Sons, Inc. TWO-STATE OPTION PRICING: BINOMIAL MODELS REVISITED GEORGE M. JABBOUR* MARAT V. KRAMIN STEPHEN D. YOUNG This article revisits the topic of two-state option pricing. It examines the models developed by Cox, Ross, and Rubinstein (1979), Rendleman and Bartter (1979), and Trigeorgis (1991) and presents two alternative binomial models based on the continuous-time and discrete-time geomet- ric Brownian motion processes, respectively. This work generalizes the standard binomial approach, incorporating the main existing models as particular cases. The proposed models are straightforward and flexible, accommodate any drift condition, and afford additional insights into bino- mial trees and lattice models in general. Furthermore, the alternative parameterizations are free of the negative aspects associated with the Cox, Ross, and Rubinstein model. © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21:987–1001, 2001