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NACVA CVA Exam - Topic 7 Question 128 Discussion

Fisher Black developed a technique to value American stock options using the Black- Scholes model called the pseudo-American call option model. The steps in the method are as follows EXCEPT:
D) Using the Black-Scholes model, compute the value of each of the pseudo-options using unadjusted underlying stock price.
A) Compute the adjusted market price of the stock by deducting the present value, using the risk-free rate, of the future dividends payable during the remaining life of the option
B) For each pseudo-option assumed to expire on a dividend date, deduct from the exercise price of the option the dividend payable on the date and the present value, using the risk-free rate, of all the remaining dividends to be paid after the dividend date during the term of the option
C) Select the European option with the highest value as the value of the American option

NACVA CVA Exam - Topic 7 Question 128 Discussion

Actual exam question for NACVA's CVA exam
Question #: 128
Topic #: 7
[All CVA Questions]

Fisher Black developed a technique to value American stock options using the Black- Scholes model called the pseudo-American call option model. The steps in the method are as follows EXCEPT:

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Suggested Answer: D

by Dyan at Jul 01, 2026, 11:01 AM

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Sina
4 days ago
Exactly! The focus should be on adjusting for dividends.
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Gearldine
9 days ago
I remember learning that C is not part of the pseudo-American model.
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Dortha
14 days ago
Right! The others focus on American options and dividends.
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Effie
19 days ago
Yes, C doesn't fit with the others. It’s about European options.
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Sue
24 days ago
Agreed! I feel like C is the odd one out.
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Pilar
30 days ago
I think this question is tricky. The steps are very specific.
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Katlyn
1 month ago
Wait, are we really using unadjusted prices? That sounds sketchy!
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Jerrod
1 month ago
Totally agree with C), that doesn't fit the model.
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Jacklyn
2 months ago
D) seems off to me, not sure about that one.
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Nan
2 months ago
I think C) is the odd one out here.
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Leanora
2 months ago
A) is definitely part of the process.
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Joseph
2 months ago
I vaguely recall that the pseudo-American model involves adjustments for dividends, so I wonder if option A could be the correct answer since it seems to align with that concept.
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Brock
2 months ago
I practiced a similar question where we had to identify incorrect steps in option pricing models, and I feel like option C might be misleading since it suggests a direct comparison with European options.
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Dierdre
2 months ago
I think option D stands out as the odd one out because it mentions using the unadjusted stock price, which seems inconsistent with the adjustments for dividends in the other options.
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Annice
3 months ago
I remember studying the steps for valuing American options, but I'm not entirely sure about the role of the European option in this context.
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