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Comparative Performance of the Black-Scholes and Roll-Geske-Whaley Option Pricing Models

Published online by Cambridge University Press:  06 April 2009

William E. Sterk
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Extract

The original Black-Scholes (BS) [2] European call option pricing model does not take account of divided payments on the underlying stock and does not allow for the possibility of early exercise that may be optimal when the stock pays dividends. Black [1] has suggested that the original BS model can be modified to take account of dividends and Sharpe [14] predicts that this modified or pseudo-American BS approach, “while not exact, is probably sufficient for many listed options.”

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 18 , Issue 3 , September 1983 , pp. 345 - 354
Copyright
Copyright © School of Business Administration, University of Washington 1983

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References

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