When to include dividends in option valuation

Discussion in 'Options' started by MechTrading, Nov 18, 2015.

  1. Hi all,

    When using Black-Scholes-Merton to value options, I am a bit uncertain as to when to include dividends. For the sake of example:

    Lets say I am looking to value one of the 18 December expiration options for Barnes Group (ticker: B)
    Barnes Group goes exdiv on Monday 23 November

    If valuing the above option today, I would include the dividend in the calculation.
    But what happens if I am performing the valuation calculation after Monday. In other words, the exdiv date has come and gone.

    Does that dividend still get included in the calculation because the exdiv date occured during the lifetime of the December option? Or on the other hand does it not get included because the exdiv date has come and gone.

    Logically it makes sense to me that the dividend would not get included after the exdiv date (inspite of the exdiv date occurring within the lifetime of the option). But I just want to check.

    Thanks.
     
  2. newwurldmn

    newwurldmn

    It does not get included after Monday. Your intuition is correct.