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The DF Structure Models for Options Pricing On the Dividend- Paying and Capital-Splitting

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  • Feng Dai

    (Zhengzhou Information Engineering University)

Abstract

Based on the DF structure models for option pricing (F. Dai, 2005), this paper discusses further the DF structure models on three cases, i.e., the underlying stock being dividend-paid, capital-split or dividend-paid and capital-split. These three cases are discussed separately, and are integrated to the general models for call or put. Finally, the examples are given to compare the options prices calculated by the DF formulas and Black-Scholes formulas, and they show, as a whole, that the DF formulas are not inferior to Black-Scholes formulas. DF formula is useful to traders in financial market because it is convenient to adjust along with the trading time.

Suggested Citation

  • Feng Dai, 2005. "The DF Structure Models for Options Pricing On the Dividend- Paying and Capital-Splitting," Finance 0508012, EconWPA.
  • Handle: RePEc:wpa:wuwpfi:0508012
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    References listed on IDEAS

    as
    1. Barone-Adesi, Giovanni & Whaley, Robert E, 1987. " Efficient Analytic Approximation of American Option Values," Journal of Finance, American Finance Association, vol. 42(2), pages 301-320, June.
    2. Merton, Robert C., 1976. "Option pricing when underlying stock returns are discontinuous," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 125-144.
    3. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    4. Peter Carr & Robert Jarrow & Ravi Myneni, 2008. "Alternative Characterizations Of American Put Options," World Scientific Book Chapters,in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 5, pages 85-103 World Scientific Publishing Co. Pte. Ltd..
    5. Geske, Robert & Roll, Richard, 1984. " On Valuing American Call Options with the Black-Scholes European Formula," Journal of Finance, American Finance Association, vol. 39(2), pages 443-455, June.
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    More about this item

    Keywords

    DF structure model; options pricing; dividend-paying; capital- splitting;

    JEL classification:

    • G - Financial Economics

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