Black Scholes Merton Model for American Option with Dividends

FRM
#1

Hi,

does anybody could answer me how Schweser calculate the American Call value on page 97 Book 4 Level 1?

Just to summarize:

Investor excercise immediately before second dividend and the value of the call is now 6,05; the value for the European Call with dividend was 6,26 before.

There must be an adjustment for T, which I don`t get yet.

Thank you!

Cheers,

Luke

#2

Please restate the whole problem, I am little far off from Schwesers.

But the general theory is this.

  • See if stock prices differences can be found out

  • See if Delta can be found out.

  • The Option pricing difference should be Delta x Stcok Price Differential

-Deduct the same from the similar Eur call option price. That should be your American call option price.