In this note we value and hedge European options on assets paying discrete stochastic dividends. Our hedging strategy is based only on the underlying asset, risk-free bonds and dividend strips. Our simple strategy is easily seen to be compatible with early results based, among other things, on the existence of a dividend forward contract. Such contracts, however, are not traded in the market pl...

Accepting the classic Black-Scholes model for a financial market consisting of a riskless bank account (Bt)0 t T and a risky stock (St)0 t T , and considering the problem of pricing an option of American type associated with the reward process f = (ft)0 t T , we address and discuss the question of the option risk. Motivated by the basic facts of the option pricing theory in complete markets rev...