The exact value for European options on a stock paying a discrete dividend

Amaro de Matos, Joao and Dilao, Rui and Ferreira, Bruno (2006): The exact value for European options on a stock paying a discrete dividend.

Abstract

In the context of a Black-Scholes economy and with a no-arbitrage argument, we derive arbitrarily accurate lower and upper bounds for the value of European options on a stock paying a discrete dividend. Setting the option price error below the smallest monetary unity, both bounds coincide, and we obtain the exact value of the option.

• Item Type: MPRA Paper
• Language: English
• Keywords: European options; Black-Scholes economy
• Subjects: G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates

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