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 Forums ›› Main ›› Options ›› Math wizz please, Option probability and interest rates

 sle   Registered: Apr 2003 Posts: 1610 06-19-12 02:37 PM You need to simply multiply the Price by exp(interest rate - div rate). Edit/Delete • Quote • Complain
 Digs   Registered: Dec 2002 Posts: 974 06-19-12 07:56 PM Thanks for a response If I have price of \$100 Divid Yld 1% Interest Rate 3% Price is \$100 * (1-.01+.03) or Price is \$100 * 1.02% = \$102 Is this correct ? Edit/Delete • Quote • Complain
 sle   Registered: Apr 2003 Posts: 1610 06-19-12 09:22 PM Quote from Digs: Thanks for a response If I have price of \$100 Divid Yld 1% Interest Rate 3% Price is \$100 * (1-.01+.03) or Price is \$100 * 1.02% = \$102 Is this correct ? If your option expires in a year, the spot price is 100, your interest rate is 1% and your div yield is 3% then your stock forward is 100 * exp((1% - 3%) * 1 year) = about 98%. Edit/Delete • Quote • Complain
 Digs   Registered: Dec 2002 Posts: 974 06-20-12 02:49 AM Thanks...I thougth dividends lowered price and interest rates increase price, you have them the other away around. When a stock goes ex Div, price is adjusted down is it not? Edit/Delete • Quote • Complain