Explain when the dividends should be similar to discounted
Explain when the dividends should be similar to discounted.
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When there are dividends upon the underlying stock throughout the life of the options, we should adjust the equation to permit for this. We now get that C − P is equal to S − Present value of all dividends − Ee−r (T−t).This, certainly, assumes that we identify what the dividends will be. Just discount the strike back to the present using the value of a zero-coupon bond along with maturity similar as the expiration of the option, if interest rates are not constant. Dividends must the same be discounted.
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