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pmb7
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Joined: November 8th, 2001, 5:21 pm

Discrete, proportional dividends on binomial tree

November 8th, 2001, 6:23 pm

I was wondering how one can implement discrete, proportionaldividends on a binomial tree if the dividend dates are noton the nodes of the tree. Specifically, the dividend rateis q; hence, the amount of the dividend at some time t isq*S(t), where S(t) is, say, the stock price. I am under theimpression that I can apply the dividend to the next nodeon the tree after the ex-dividend date with an appropriatelyscaled q, but I'm not sure what this scale is. Any help wouldbe greatly appreciated.Paul