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Tests of Two Models for Valuing Call Options on Stocks with Dividends
Author(s) -
STERK WILLIAM
Publication year - 1982
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1982.tb03614.x
Subject(s) - dividend , economics , black–scholes model , financial economics , econometrics , call option , stock (firearms) , payment , finance , engineering , mechanical engineering , volatility (finance)
Roll has recently formulated an option pricing model which allows dividend payments on the underlying stock. This paper compares the performance of the exact Roll model with a modified, but inexact, Black‐Scholes model. The results indicate that the Roll model prices are significantly closer to actual market prices.