Pricing of Barrier Call Option with Single Dividend at Indonesian Stock Exchange

Abstract

A stock option contract is a contract containing a call option, which gives option holder the rights to buy a certain amount of the underlying assets of the contract. Barrier options are path-dependent exotics option that are similar in some ways to regular options, but they become activated or extinguished only if the underlying reaches a predetermined level. The value of a call option contract at the Indonesian Stock Exchange is influenced not only by underlying assets but also by a barrier as the controller of loss and profit, and dividend. Black-Scholes model is a continuous model, which is designed for pricing European option. In the case of American option, binomial lattice method can be used to calculate its price. This thesis presents a numerical study showing that the results using binomial lattice method are close to the results of Black-Sholes method. Furthermore, the model of barrier call options with a single dividend is applied to the case of stock at the Indonesian Stock Exchange. The results agree with the theory that has been developed. The price of barrier call options is lower compared to the regular call options and the dividend gives a negative impact to the option value.