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When there is a dividend scheduled to be paid before the expiry of an American call option written on a stock, Blacks approximation sets the
When there is a dividend scheduled to be paid before the expiry of an American call option written on a stock, Blacks approximation sets the value of the American call option equal to which of the following?
- The value of an otherwise identical European call option maturing just before the dividend payment
- The value of an otherwise identical European call option maturing just after the dividend payment
A: Only (1)
B: Only (2)
C: The greater of the values in (1) and (2)
D: The greater of the value in (2) and the value assuming no early exercise.
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