Closed Form Option Pricing for Stocks with Fixed Dividends

12 Pages Posted: 18 Feb 2021 Last revised: 31 Mar 2021

See all articles by Dimitri Offengenden

Dimitri Offengenden

Strategist

Roberto Caccia

University of Colorado at Boulder - Leeds School of Business

Vahagn Minasian

affiliation not provided to SSRN

Date Written: February 14, 2021

Abstract

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

Suggested Citation

Offengenden, Dimitri and Caccia, Roberto and Minasian, Vahagn, Closed Form Option Pricing for Stocks with Fixed Dividends (February 14, 2021). Available at SSRN: https://ssrn.com/abstract=3785599 or http://dx.doi.org/10.2139/ssrn.3785599

Dimitri Offengenden

Strategist ( email )

United States

Roberto Caccia (Contact Author)

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO CO 80301
United States
2677023780 (Phone)
80301 (Fax)

HOME PAGE: http://https://www.linkedin.com/in/roberto-caccia/

Vahagn Minasian

affiliation not provided to SSRN

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