Option Put-Call Parity Relations When the Underlying Security Pays Dividends
AbstractThe original put-call parity relations hold under the premise that the underlying security does not pay dividends before the expiration of the options. Similar to Hull (2003), this paper relaxes the non-dividend-paying assumption. The underlying security price in the original European-style put-call parity relation is adjusted downwards by the present value of expected dividends before the option expires. The upper bound of the American-style put-call parity relation is adjusted upwards by the amount of the present value of expected dividends. The results provide theoretical boundaries of options prices and expand application of put-call parity relations to all options on currencies and dividend-paying stocks and stock indices, both European-style and American-style.
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Bibliographic InfoArticle provided by College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan in its journal International Journal of Business and Economics.
Volume (Year): 5 (2006)
Issue (Month): 3 (December)
options; dividends; put-call parity;
Find related papers by JEL classification:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Cox, John C & Ross, Stephen A, 1976. "A Survey of Some New Results in Financial Option Pricing Theory," Journal of Finance, American Finance Association, vol. 31(2), pages 383-402, May.
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