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An Analytic Approximation for the American Put Price for Options on Stocks with Dividends

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  • Blomeyer, Edward C.

Abstract

In a recent paper, Johnson [7] has given an analytic approximation to the American put price that delivers values that are very close to numerical solutions. The limitation to the Johnson approximation is that it is only applicable to put options on stocks without cash dividends. This study modifies the Johnson approximation to value options on stocks that have one exdividend date prior to the option expiration date, and these approximation values are compared to the analytic solutions provided by the Geske and Johnson [6] American put option pricing model. The approximation values are generally very close to the analytic solutions.

Suggested Citation

  • Blomeyer, Edward C., 1986. "An Analytic Approximation for the American Put Price for Options on Stocks with Dividends," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 21(2), pages 229-233, June.
    • Handle: RePEc:cup:jfinqa:v:21:y:1986:i:02:p:229-233_01
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    1. repec:dau:papers:123456789/9845 is not listed on IDEAS
    2. Groh, Alexander P., 2004. "Risikoadjustierte Performance von Private Equity-Investitionen," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 21382, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    3. Mondher Bellalah, 2009. "Derivatives, Risk Management & Value," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 7175, January.
    4. Andrew Ziogas, 2005. "Pricing American Options Using Fourier Analysis," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 2-2005.
    5. Andrew Ziogas, 2005. "Pricing American Options Using Fourier Analysis," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 29, July-Dece.
    6. Gary L. Trennepohl & James R. Booth & Hassan Tehranian, 1988. "An Empirical Analysis Of Insured Portfolio Strategies Using Listed Options," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 11(1), pages 1-12, March.
    7. Roland Mallier & Ghada Alobaidi, 2000. "Laplace transforms and American options," Applied Mathematical Finance, Taylor & Francis Journals, vol. 7(4), pages 241-256.
    8. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.
    9. Mark Broadie & Jérôme Detemple, 1996. "Recent Advances in Numerical Methods for Pricing Derivative Securities," CIRANO Working Papers 96s-17, CIRANO.

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