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

João Amaro de Matos (), Rui Dilao and Bruno Ferreira

MPRA Paper from University Library of Munich, Germany

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.

Keywords: European options; Black-Scholes economy. (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2006-01-02
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Persistent link: http://EconPapers.repec.org/RePEc:pra:mprapa:701

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