Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

A black-scholes formula for option pricing with dividends

A black-scholes formula for option pricing with dividends Abstract We obtain a Black-Scholes formula for the arbitrage-free pricing of European Call options with constant coefficients when the underlying stock generates dividends. To hedge the Call option, we will always borrow money from bank. We see the influence of the dividend term on the option pricing via the comparison theorem of BSDE(backward stochastic differential equation [5], [7]). We also consider the option pricing problem in terms of the borrowing rate R which is not equal to the interest rater. The corresponding Black-Scholes formula is given. We notice that it is in fact the borrowing rate that plays the role in the pricing formula. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Applied Mathematics-A Journal of Chinese Universities Springer Journals

A black-scholes formula for option pricing with dividends

Download PDF
6 pages

Loading next page...
 
/lp/springer-journals/a-black-scholes-formula-for-option-pricing-with-dividends-ar3CtStSEX
Publisher
Springer Journals
Copyright
1996 Editorial Committee of Applied Mathematics-A Journal of Chinese Universities
ISSN
1005-1031
eISSN
1993-0445
DOI
10.1007/BF02662009
Publisher site
See Article on Publisher Site

Abstract

Abstract We obtain a Black-Scholes formula for the arbitrage-free pricing of European Call options with constant coefficients when the underlying stock generates dividends. To hedge the Call option, we will always borrow money from bank. We see the influence of the dividend term on the option pricing via the comparison theorem of BSDE(backward stochastic differential equation [5], [7]). We also consider the option pricing problem in terms of the borrowing rate R which is not equal to the interest rater. The corresponding Black-Scholes formula is given. We notice that it is in fact the borrowing rate that plays the role in the pricing formula.

Journal

Applied Mathematics-A Journal of Chinese Universities – Springer Journals

Published: Jun 1, 1996

References

  • Security Markets: Stochastic Models
    D. Duffie
  • Optimization problems in the theory of continuous trading
    Ioannis Karatzas
  • Brownian Motion and Stochastic Calculus
    Steven Shreve
  • Notes on Mathematical Finance
    Nicole El Karoui
  • An adapted solution of a backward stochastic differential equation
    E. Pardoux, Shige Peng
  • A Nonlinear Feynman-Kac Formula and Applications
    Shige Peng
  • Backward stochastic differential equation and application to optimal control
    Shige Peng