Explain why the option price should be continuous across a dividend date though the asset price experiences
Question:
Explain why the option price should be continuous across a dividend date though the asset price experiences a jump. Using no arbitrage principle, deduce the following jump condition:
where V denotes option price, t−d and t+d denote the time just before and after the dividend date td.
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When a dividend is paid on a stock the stock price typically drops by the amount of the dividend on ...View the full answer
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