Dividend Adjusted Model to value Short Term Options
Originally published: 20/06/2016 09:45
Publication number: ELQ-65059-1
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Dividend Adjusted Model to value Short Term Options

A dividend-adjusted model for valuing short-term options.

This program calculates the value of a short term option (< 1 year) adjusting for dividends by subtracting the present value of expected dividend from the current value of the asset.

It considers the present value of expected dividends during the option life.

The user has to input the following variables:
1. Current market value of the underlying asset
2. Variance in the ln(value) of the underlying asset
3. Strike price of the option
4. Riskless interest rate that corresponds to the life of the option
5. Time to expiration on the option
6. Expected dividends and date of ex-dividend payments.

Note: this model is being shared with the authorization of Professor Aswath Damodaran from NYU Stern Business School (www.damodaran.com)

This Best Practice includes
1 Excel Model File

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Further information

The objective of this model is to get the following output values:
- Value of the call
- Value of the put

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