IJPAM: Volume 106, No. 4 (2016)

ON A DIVIDEND-PAYING STOCK OPTIONS PRICING
MODEL (SOPM) USING CONSTANT ELASTICITY
OF VARIANCE STOCHASTIC DYNAMICS

S.O. Edeki$^1$, O.O. Ugbebor$^2$, E.A. Owoloko$^3$
$^{1,3}$Department of Mathematics
Covenant University
Canaanland, Otta, NIGERIA
$^{2,3}$Department of Mathematics
University of Ibadan
Ibadan, NIGERIA


Abstract. In this paper, we propose a pricing model for stock option valuation. The model is derived from the classical Black-Scholes option pricing equation via the application of the constant elasticity of variance (CEV) model with dividend yield. This modifies the Black-Scholes equation by incorporating a non-constant volatility power function of the underlying stock price, and a dividend yield parameter.

Received: January 2, 2016

AMS Subject Classification: 91B25, 37N40, 35R60

Key Words and Phrases: stock options, CEV, stochastic dynamics, dividend yield

Download paper from here.

History: