16.7 The Options Pricing Model for Securities that
Pay Known Dividends
When a stock pays dividends, the options are not payout-protected. is means that when a stock goes
ex-dividend, the stock price will decrease by the amount of dividends that are declared. e decrease in
the stock price due to dividend payment will decrease the price of a call option and increase the price of
a put option. us, the option price should take into account the possibility of dividend payment during
the life of the option.
Since the stock price is the present value of future dividends, the dierence between the current ...
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