Discrete Dividend and Option Prices - Quant Trader Interview Question
Difficulty: Medium
Category: Options & Greeks
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Topics: options, dividends, put-call-parity, european-options
Problem Description
A stock is currently trading at 50 dollars. It pays a known discrete dividend of 2 dollars exactly one week before the expiration date of a European call and put option. Both options have a strike price of 50 dollars and expire in one month. How does the discrete dividend payment impact the prices of the European call and put options?
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