Doubt - Derivatives expected, adjusted, exercise, payments, following

w1977

The put-call parity relation can be adjusted for dividend payments on a stock by which of the following methods?

A) Add the present value of the expected dividend payments to the exercise price.

B) Add the present value of the expected dividend payments to the current stock price.

C) Subtract the present value of the expected dividend payments from the current stock price.


Solution: C. The correct adjustment is to subtract the present value of the expected dividend payments from the current stock price.


Can someone please explain this concept

waldziuchna

Options prices do not adjust for stock dividends.

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CFA Jay, CFA

scr879

Thanks mihau !!!