More Stochastic Expansions for the Pricing of Vanilla Options with Cash Dividends

21 Pages Posted: 6 Dec 2015 Last revised: 1 Feb 2016

Date Written: December 1, 2015

Abstract

There is no exact closed form formula for pricing of European options with discrete cash dividends under the model where the underlying asset price follows a piecewise lognormal process with jumps at dividend ex-dates. This paper presents alternative expansions based on the technique of Etore and Gobet, leading to more robust first, second and third order expansions accross the range of strikes and the range of dividend dates.

Keywords: Discrete dividends, cash dividends, stochastic expansion, option, pricing, Black-Scholes, finance

Suggested Citation

Le Floc'h, Fabien, More Stochastic Expansions for the Pricing of Vanilla Options with Cash Dividends (December 1, 2015). Available at SSRN: https://ssrn.com/abstract=2698283 or http://dx.doi.org/10.2139/ssrn.2698283

Fabien Le Floc'h (Contact Author)

Calypso Technology ( email )

106 rue de la Boetie
Paris, 75008
France

Independent ( email )

France

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