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Black-Scholes & Dividends

The Original Black-Scholes Model

The original Black-Scholes option pricing model (Black, Scholes, 1973) assumes that the underlying security does not pay any dividends. In other words, dividends don't enter option price calculation in any way.

Black-Scholes(-Merton) Model Expanded for Dividends

The spreadsheet uses the expanded version of the model (Merton, 1973) that can price options on securities that pay a dividend. The calculation assumes that the underlying security pays a continuous dividend at the rate you set as entry parameter.

Note: If you want the exact original Black-Scholes model, just set dividend yield to zero.