The valuation of options on discrete dividend-paying stocks

Yuanchuang Shan, Huisheng Shu, Xuekang Zhang and Haoran Yi

Applied Economics Letters, 2024, vol. 31, issue 12, 1090-1095

Abstract: In this paper, the valuation of European options in which the underlying stock pays a discrete dividend is investigated. A specific value is set in advance, and a dividend is paid when the underlying share price reaches it. The risk-neutral price of the associated European call option is derived. Numerical simulations are presented to illustrate the effects of model parameters on the option prices.

Date: 2024
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DOI: 10.1080/13504851.2023.2176431

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