In the ASM manual problem #9.3 . It gives you the Forward price instead of the stock price S0. So the next step is to make the forward into a prepaid forward by discounting by the rate and just use the prepaid forward equation for Black Scholes.
But the dividend rate never gets used. Why is that?
I would think to discount the Forward price by the rate, and then use the standard Black Scholes for stock options, and further discount the price by the dividend rate.
Why is that wrong?
Thanks!
But the dividend rate never gets used. Why is that?
I would think to discount the Forward price by the rate, and then use the standard Black Scholes for stock options, and further discount the price by the dividend rate.
Why is that wrong?
Thanks!
Question about Black Scholes w forwards: ASM
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