Martina Nardon

finance seminar

Martina Nardon

Ca' Foscari University of Venice
Efficient binomial methods for the evaluation of options with cash dividends
Co-écrit avec
Paolo Pianca
Événement annulé
Lieu

Château Lafarge

Château Lafarge - Salle de séminaires
Château Lafarge
Route des Milles
13290 Les Milles
Date(s)
Mardi 12 décembre 2017| 14:30
Contact(s)

Eric Girardin : eric.girardin[at]univ-amu.fr
Christelle Lecourt : christelle.lecourt[at]univ-amu.fr
Jean-François Carpantier : jean-francois.carpantier[at]univ-amu.fr

Résumé

In this contribution, we consider options written on stocks which pay cash dividends. Dividend payments have an effect on the value of options: high dividends imply lower call premia and higher put premia. While exact solutions to problems of evaluating both European and American call options and European put options are available in the literature, for American-style put options early exercise may be optimal at any time prior to expiration even in the absence of dividends. In this case numerical techniques, such as lattice approaches, are required. Discrete dividends produce a shift in the tree; as a result, the tree is no longer reconnecting beyond any dividend date. Methods based on non-recombining trees give consistent results, but they are computationally expensive. We analyze efficient binomial algorithms based on an interpolation technique and other enhancements that allow us to com- pute fast and accurate option prices even in the case of multiple dividends. Finally, we present numerical results.