Put—Call Parity and Dividends The put–call parity condition is altered when dividends are paid. The dividend adjusted put–call parity formula is where d is again the continuously compounded dividend yield. The Black–Scholes option pricing model with dividends is:

(a) What effect do you think the dividend yield will have on the price of a put option? Explain.

(b) Genmab A/S is currently priced at 2.26 Danish Kroner (DKr) per share, the standard deviation of its return is 50 per cent per year, and the risk-free rate is 5 per cent per year compounded continuously. What is the price of a call option with a strike price of DKr2.00 and a maturity of 6 months if the share has a dividend yield of 2 per cent per year? What is the price of a put option with the same strike price and time to expiration as the call option?