You are estimating the price of an american option using a binomial tree (basit, two or more steps). You calculate the price of the call at each node using the formula callrode - (p callup + (1-p)'calldown)/(1+r)... You are an expert by now. At one of the nodes, you realize that the intrinsic value of the call is higher than the call price you have estimated before. Given that the option is american you go ahead and keep my previous calculation include the two values in all my reports In this case we cannot solve the binomial tree replace the call value in such node for the intrinsic value divided by (1)