Option Put-Call Parity Relations When the Underlying Security Pays Dividends

Weiyu Guo and Tie Su
Additional contact information
Weiyu Guo: Department of Finance, University of Nebraska¡XOmaha, U.S.A.
Tie Su: Department of Finance, University of Miami, U.S.A.

International Journal of Business and Economics, 2006, vol. 5, issue 3, 225-230

Abstract: The original put-call parity relations hold under the premise that the underlying security does not pay dividends before the expiration of the options. Similar to Hull (2003), this paper relaxes the non-dividend-paying assumption. The underlying security price in the original European-style put-call parity relation is adjusted downwards by the present value of expected dividends before the option expires. The upper bound of the American-style put-call parity relation is adjusted upwards by the amount of the present value of expected dividends. The results provide theoretical boundaries of options prices and expand application of put-call parity relations to all options on currencies and dividend-paying stocks and stock indices, both European-style and American-style.

Keywords: options; dividends; put-call parity (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://ijbe.fcu.edu.tw/assets/ijbe/past_issue/No.05-3/pdf/vol_5-3-4.pdf (application/pdf)
https://ijbe.fcu.edu.tw/assets/ijbe/past_issue/No.05-3/abstract/04.html (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ijb:journl:v:5:y:2006:i:3:p:225-230

Access Statistics for this article

International Journal of Business and Economics is currently edited by Hsiang-Tsai Chiang (Editor-in-Chief), Chiung-Ju Huang (Editor-in-Chief), Feng-Jyh Lin (Associate Editor), Tzu-Ching Weng (Associate Editor), Hsin-Yi Huang (Managing Editor) and Szu-Hsien Ho (Managing Editor)

More articles in International Journal of Business and Economics from School of Management Development, Feng Chia University, Taichung, Taiwan Contact information at EDIRC.
Bibliographic data for series maintained by Szu-Hsien Ho ().