Comparison of American Binomial Options with Discrete and Continuous Dividend

Dian Ayu Merdekawati (Institut Teknologi Sepuluh Nopember)
Yolanda Norasia (Institut Teknologi Sepuluh Nopember)
Charisma Juni Kumalasari (Institut Teknologi Sepuluh Nopember)
Endah Rokhmati Merdika Putri (Department of Mathematics, Institut Teknologi Sepuluh Nopember, Kampus ITS Sukolilo-Surabaya 60111, Indonesia)

International Journal of Computing Science and Applied Mathematics-IJCSAM
Vol. 6 No. 2 (2020)

This study discusses the effect of dividend on option pricing by using a binomial method. It also investigated the initial stock value, number of steps, and strike price effects on the behavior of options pricing. From several simulations conducted, it was found that the values of call options with discrete dividend are greater than the continuous dividend. While on the put option, the values of the put options with a continuous dividend are greater than the discrete dividend.