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ABSTRACT
In this paper, the valuation of European options in which the underlying stock pays a discrete dividend is investigated. A specific value is set in advance, and a dividend is paid when the underlying share price reaches it. The risk-neutral price of the associated European call option is derived. Numerical simulations are presented to illustrate the effects of model parameters on the option prices.
Acknowledgements
The authors would like to thank the referee for careful reading of the paper and helpful comments.
Disclosure statement
No potential conflict of interest was reported by the authors.
Additional information
Funding
The work was supported by the National Natural Science Foundation of China[62073071,12101004], the Fundamental Research Funds for the Central Universities and Graduate Student Innovation Fund of Donghua University (CUSF-DH-D-2022078 and 2021045), and the Startup Foundation for Introducing Talent of Anhui Poly- technic University (No. 2020YQQ064).
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