Since dividends could trigger an early exercise of an American call,the Black-Scholes-Merton dividend adjustment will provide the correct price of an American call.

Question

Quizplus · Accepted Answer

The Black-Scholes-Merton model is designed for pricing European options and does not account for early exercise features, which are relevant for American options. For American options, especially calls on dividend-paying stocks, adjustments or alternative models are needed to accurately account for the early exercise possibility due to dividends.

Since Dividends Could Trigger an Early Exercise of an American