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
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
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