Closed Form Option Pricing for Stocks with Fixed Dividends
12 Pages Posted: 18 Feb 2021 Last revised: 31 Mar 2021
Date Written: February 14, 2021
This article discusses a simple, fast and accurate closed-form solution for European options and forwards on a stock with discrete, fixed-amount dividends, and robust w.r.t. a wide range of inputs. While many various precise expansion approaches exist, we are looking for a simple, easy to implement and fast method that works across a wide range of inputs. The option with dividends can be transformed into an average option that can be solved using well-known methods for average options, such as Curran. We find that this is the best compromise between accuracy, simplicity and speed for a wide range of practical applications.
Keywords: options, fixed dividends, Curran, closed form
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