13) Options on assets paying dividends Flashcards
(7 cards)
1
Q
Why are dividends important in option pricing, and how are they modelled
A
Dividends affect option prices because they reduce the stock price when paid.
Two main ways to model dividends:
* Continuous dividend yield: Dividends paid smoothly over time, like interest.
* Discrete dividends: Dividends paid at specific dates.
2
Q
How do dividends affect forward prices
A
3
Q
What is the Put-Call parity when there are continuous dividends
A
4
Q
How does the dividend affect the Black-Scholes PDE
A
5
Q
How do you derive the modified black-scholes with dividends equation
A
6
Q
How do we calculating the pricing of options when dividends are constant
A
7
Q
Give an example of what happens if the dividend yield is not constant
A
