18.15 Binomial Tree for dividend Paying stock Procedure Draw the tree for the stock price less the present value of the dividends Create a new tree by adding the present value of the dividends at each node This ensures that the tree recombines and makes assumptions similar to those when the black-scholes model is used Options, Futures, and Other Derivatives, 5th edition C 2002 by John C Hull18.15 Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull Binomial Tree for Dividend Paying Stock • Procedure: - Draw the tree for the stock price less the present value of the dividends - Create a new tree by adding the present value of the dividends at each node • This ensures that the tree recombines and makes assumptions similar to those when the Black-Scholes model is used