Yield in Black-Scholes

[BasiX]

Does anybody know if the Yield rate is actually being used in the street, or by CBOE when calculating vanilla equity options; it seems to me that a yield of zero is used but I am not sure.

 

[Andy Nguyen]

Black-Scholes uses the assumption that there is no dividend. Merton model extended it for dividend paying assets so technically, the yield is zero in BS.
In practice, most options are priced by the market, not by models. People only use BS framework to value less actively traded options.

 

[evil]

Black-Scholes uses the assumption that there is no dividend. Merton model extended it for dividend paying assets so technically, the yield is zero in BS.
In practice, most options are priced by the market, not by models. People only use BS framework to value less actively traded options.

there pricing options using the market?? so everythin i learnt in derivatives pricing BS comes down to BS( BullShit)...lol

btw i thought when pricing vanilla options (excluding dividends) the rate is referring to the risk free rate of say a 30day government bill. ....unless you mean the dividend yield is 0 then its all good!!

 

[BasiX]

I understand that the market marks the options but obviously the vols capture their view, but again there is some model being used to spit that magic price; I assume it is the BS model (whatever the acronym means ) but what happen when you fishing for implied vols, would you use a dividend yield or zero ?