Home/ Questions/Q 269999
Next
In Process
Ishita2002
  • 0
Asked: 2025-08-22T15:51:31+05:30 In:

Black Scholes

  • 0
Black Scholes

Why have we not calculated In(S/E) using S* (ex dividend stock price)?

Share

    Related Questions

    2 Answers

    1. Pro

      In this problem, a dividend yield (y) is given β€” 3.6% p.a.

      There are two equivalent ways of handling dividends in the BSM model:

      1st – Adjust the stock price directly (ex-dividend form) and then use the standard Black–Scholes formula without y.

      2nd – Keep the actual current price S0​ and introduce yΒ explicitly into the formula:

      here second approach is used β€”

      S0​=930 is cum-dividend, not adjusted.

      The dividend effect is handled through the term e^βˆ’yTΒ in the final call formula, not by modifying S0

      therefore You do not take ln⁑(Sβˆ—/X) Β because you already accounted for dividends through y.

      • 0
    2. Pro

      In this problem, a dividend yield (y) is given β€” 3.6% p.a.

      There are two equivalent ways of handling dividends in the BSM model:

      1st – Adjust the stock price directly (ex-dividend form) and then use the standard Black–Scholes formula without y.

      2nd – Keep the actual current price S0​ and introduce yΒ explicitly into the formula:

      here second approach is used β€”

      S0​=930 is cum-dividend, not adjusted.

      The dividend effect is handled through the term e^βˆ’yTΒ in the final call formula, not by modifying S0

      therefore You do not take ln⁑(Sβˆ—/X) Β because you already accounted for dividends through y.

      • 0

    You must login to add an answer.

    Need An Account,