When there are two dividends on a stock,Black's approximation sets the value of an American call option equal to which of the following
A) The value of a European option maturing just before the first dividend
B) The value of a European option maturing just before the second (final) dividend
C) The greater of the values in A and B
D) The greater of the value in B and the value assuming no early exercise

Question

Quizplus · Accepted Answer

For Black's approximation we calculate a)the value of the option assuming no early exercise and b)the value of the option assuming that the exercise decision is made immediately before the final ex-dividend date.The value of the option is set equal to the greater of these two values.

When There Are Two Dividends on a Stock,Black's Approximation Sets