European option with dividend yield (Merton’s Formula)
The vales of European call and put options for a stock paying a dividend yield at rate q were first derived by R.C. Merton 1973 and can be given by replacing So with Soe−qT in the Black-Schloes-Merton formula for European style call and put.
Thus the formula for European call option with dividend yield q is given as
And, the formula for European put option with dividend yield is given as
Where
