Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5069975 | Finance Research Letters | 2007 | 16 Pages |
Abstract
An American call option on a stock paying a single known dividend can be valued using the Roll-Geske-Whaley formula. This paper extends the Roll-Geske-Whaley model to the n dividends case by using the generalized n-fold compound option model. In this way this paper offers a closed-form solution for American options on stocks paying n known discrete dividends. Moreover, the model also offers the critical values of the early exercise boundaries at each ex-dividend date instant, making it easy to define an early exercise strategy. Numerical examples are included to illustrate this approach.
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Authors
D. Cassimon, P.J. Engelen, L. Thomassen, M. Van Wouwe,