An alternative approach to solving the Black–Scholes equation with time-varying parameters Original Research Article

In this note we provide a simple derivation of an explicit formula for the price of an option on a dividend-paying equity when the parameters in the Black–Scholes partial differential equation (PDE) are time dependent. With the aid of general transformations, the option value is expressed as a product of the Black–Scholes price for an option on a non-dividend-paying equity with constant parameters, the ratio of the strike price in the time-varying case to the strike price in the constant-parameter case, and a modified discount factor containing a parametrised time variable.