Published September 1983
| public
Journal Article
Over‐the‐Counter Option Market Dividend Protection and "Biases" in the Black‐Scholes Model: A Note
- Creators
- Geske, Robert
- Roll, Richard
- Shastri, Kuldeep
Abstract
Most options are traded over‐the‐counter (OTC) and are dividend "protected;" the exercise price decreases on the ex date by an amount equal to the dividend. This protection completely inhibits the early exercise of American call options. Nevertheless, OTC‐protected options have market values which differ systematically from Black‐Scholes values for European options on non‐dividend paying stocks. The pricing difference is related to both the variance of the underlying stock return and to time until expiration of the option, but it is quite small in dollar amount.
Additional Information
© 1983 the American Finance Association. We thank the CIVITAS Foundation at the University of California, Los Angeles, and the Graduate School of Business at the University of Pittsburgh for financial support. We also thank Michael Brennan and Jon Ingersoll for their comments.Additional details
- Eprint ID
- 95279
- DOI
- 10.1111/j.1540-6261.1983.tb02295.x
- Resolver ID
- CaltechAUTHORS:20190507-081911028
- University of California Los Angeles (UCLA)
- University of Pittsburgh
- Created
-
2019-05-07Created from EPrint's datestamp field
- Updated
-
2021-11-16Created from EPrint's last_modified field