The hypothetical scanning molecular dynamics (HSMD) method is used here for calculating the absolute free energy of binding, ΔA(0) of the complex of the protein FKBP12 with the ligand SB2 (also denoted L8) - a system that has been studied previously for comparing the performance of different methods. Our preliminary study suggests that considering long-range electrostatics is imperative even for a hydrophobic ligand such as L8. Therefore the system is modeled by the AMBER force field using Particle Mesh Ewald (PME). HSMD consists of three stages applied to both the ligand-solvent and ligand-protein systems. (1) A small set of system configurations (frames) is extracted from an MD trajectory. (2) The entropy of the ligand in each frame is calculated by a reconstruction procedure. (3) The contribution of water and protein to ΔA(0) is calculated for each frame by gradually increasing the ligand-environment interactions from zero to their full value using thermodynamic integration (TI). Unlike the conventional methods, the structure of the ligand is kept fixed during TI, and HSMD is thus free from the end-point problem encountered with the double annihilation method (DAM); therefore, the need for applying restraints is avoided. Furthermore, unlike the conventional methods, the entropy of the ligand and water is obtained directly as a byproduct of the simulation. In this paper, in addition to the difference in the internal entropies of the ligand in the two environments, we calculate for the first time the external entropy of the ligand, which provides a measure for the size of the active site. We obtain ΔA(0) = -10.7 ±1.0 as compared to the experimental values -10.9 and -10.6 kcal/mol. However, a protein/water system treated by periodic boundary conditions grows significantly with increasing protein size and the computation of ΔA(0) would become expensive by all methods. Therefore, we also apply HSMD to FKBP12-L8 described by the GSBP/SSBP model of Roux's group (implemented in the software CHARMM) where only part of the protein and water around the active site are considered and long-range electrostatic effects are taken into account. For comparison this model was also treated by the double decoupling method (DDM). The two methods have led to comparable results for ΔA(0) which are somewhat lower than the experimental value. The ligand was found to be more confined in the active site described by GSBP/SSBP than by PME where its entropy in solvent is larger than in the active site by 1.7 and by 5.5 kcal/mol, respectively.