Explain why the option price should be continuous across a dividend date though the asset price experiences

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Explain why the option price should be continuous across a dividend date though the asset price experiences a jump. Using no arbitrage principle, deduce the following jump condition:

V(S(t), t) = V(S(t), t),

where V denotes option price, t⁻_d and t⁺_d denote the time just before and after the dividend date t_d.

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Related Book For answer-question

Mathematical Models Of Financial Derivative

ISBN: 9783642447938

2nd Edition

Authors: Yue-Kuen Kwok

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Question Posted: Dec 02, 2023 04:04 AM

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Explain why the option price should be continuous across a dividend date though the asset price experiences

Question:

V(S(1), t) = V(S(tā), tā),

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When a dividend is paid on a stock the stock price typically drops by the amount of the dividend on ...View the full answer

Mathematical Models Of Financial Derivative

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