Comparative Performance of the Black-Scholes and Roll-Geske-Whaley Option Pricing Models

William E. Sterk

Journal of Financial and Quantitative Analysis, 1983, vol. 18, issue 3, 345-354

Abstract: The original Black-Scholes (BS) [2] European call option pricing model does not take account of divided payments on the underlying stock and does not allow for the possibility of early exercise that may be optimal when the stock pays dividends. Black [1] has suggested that the original BS model can be modified to take account of dividends and Sharpe [14] predicts that this modified or pseudo-American BS approach, “while not exact, is probably sufficient for many listed options.”

Date: 1983
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