American Options, Part 2 notation

The lecture not upon which yesterday’s lecture, “American Options, Part 2,” is based (Effects of Dividends on the Pricing of European and American Options) , uses some notation that may seem unfamiliar.  Specifically, I am referring to the notation for terminal node call option payoffs that use the following syntax: C(T) = (S(T)-K)+. This is an abbreviation for C(T) = Max(0, S(T)-K). Furthermore, this PDF uses discrete rather than continuous compounding.

 

Leave a Reply

Your email address will not be published. Required fields are marked *