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- Title
On the Accuracy of Binomial Model for the Valuation of Standard Options with Dividend Yield in the Context of Black-Scholes Model.
- Authors
Nwozo, Chuma Raphael; Fadugba, Sunday Emmanuel
- Abstract
This paper presents the accuracy of binomial model for the valuation of standard options with dividend yield in the context of Black-Scholes model. It is observed that the binomial model gives a better accuracy in pricing the American type option than the Black-Scholes model. This is due to fact that the binomial model considers the possibilities of early exercise and other features like dividend. It is also observed that the binomial model is both computationally efficient and accurate but not adequate to price path dependent options.
- Subjects
VALUATION; OPTIONS (Finance); DIVIDEND yield; BLACK-Scholes model; ECONOMIC models; BINOMIAL theorem
- Publication
IAENG International Journal of Applied Mathematics, 2014, Vol 44, Issue 1, p33
- ISSN
1992-9978
- Publication type
Article