Book Image

Python for Finance

By : Yuxing Yan
Book Image

Python for Finance

By: Yuxing Yan

Overview of this book

Table of Contents (20 chapters)
Python for Finance
About the Author
About the Reviewers

European options with known dividends

Assume that we have a known dividend d distributed at time T1, T1 < T, where T is our maturity date. We can modify the original Black-Scholes-Merton option model by replacing S0 with S, where:

In the previously discussed example, if we have a known dividend of $1.5 delivered in one month, what is the price of the call?. The price is calculated as follows:

>>>import p4f

The first line of the program imports the p4f module, which contains the call option model. The result shows that the price of the call is $1.18, which is lower than the previous value ($1.56). It is understandable since the price of the underlying stock would drop roughly by $1.5 in one month. Because of this, the chance that we could exercise our call option will be less, that is...