A closed-form formula for unprotected American call options on assets paying discrete known dividends
AbstractIn general, American options cannot be valued by closed-form formulas. There is however an exception within the setting of dividendpaying assets. It is known that American call options will be exercised early, only at a time just prior to an ex-dividend date. In extending the Roll-Geske-Whaley model and in using the theory of the n-fold compound options, such closed-form formulas are derived in case the asset pays n dividends with n > 2. Moreover a sensitivity analysis for American call options will be performed. Finally some numerical examples are included.
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Bibliographic InfoPaper provided by University of Antwerp, Faculty of Applied Economics in its series Working Papers with number 2004015.
Length: 11 pages
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-01-02 (All new papers)
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