Question on FinancialDerivative in Ver 8

*To*: mathgroup at smc.vnet.net*Subject*: [mg114065] Question on FinancialDerivative in Ver 8*From*: Dana DeLouis <dana.del at gmail.com>*Date*: Mon, 22 Nov 2010 07:39:27 -0500 (EST)

Hi. Here's a Call option with Low Volatility 1 year out. A dividend of 0 returns a value of 0.05 for this call option. FinancialDerivative[ {"American", "Call"}, {"StrikePrice" -> 50, "Expiration" -> 1}, { "CurrentPrice" -> 30, "InterestRate" -> .1, "Volatility" -> .2, "Dividend" -> 0}] 0.05384 If I increase the Dividend to a penny, the Call option goes =91up=92 (not down) in price to 0.087 ?? FinancialDerivative[ {"American", "Call"}, {"StrikePrice" -> 50, "Expiration" -> 1}, { "CurrentPrice" -> 30, "InterestRate" -> .1, "Volatility" -> .2, "Dividend" -> .01}] 0.08731 If during a calculation, the dividend is calculated close to zero (say 0.0001) the Call Option is now worth $27.05 ?? Huh? How I would love to sell this Call option all day long. :>) FinancialDerivative[ {"American", "Call"}, {"StrikePrice" -> 50, "Expiration" -> 1}, { "CurrentPrice" -> 30, "InterestRate" -> .1, "Volatility" -> .2, "Dividend" -> 0.0001}] 27.05 A Dividend of 0.10 brings the price back down to below that of the 0 dividend price. FinancialDerivative[ {"American", "Call"}, {"StrikePrice" -> 50, "Expiration" -> 1}, { "CurrentPrice" -> 30, "InterestRate" -> .1, "Volatility" -> .2, "Dividend" -> .10}] 0.01211 Any thoughts/insight into this? Thanks. I'm using an Apple Mac Pro w/ Ver 8.