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More stochastic expansions for the pricing of vanilla options with cash dividends

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  • Fabien Le Floc'h

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 across the range of strikes and the range of dividend dates.

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  • Fabien Le Floc'h, 2021. "More stochastic expansions for the pricing of vanilla options with cash dividends," Papers 2106.12051, arXiv.org.
    • Handle: RePEc:arx:papers:2106.12051
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    References listed on IDEAS

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    1. Pierre Etoré & Emmanuel Gobet, 2012. "Stochastic expansion for the pricing of call options with discrete dividends," Post-Print hal-00507787, HAL.
    2. Pierre Étor� & Emmanuel Gobet, 2012. "Stochastic Expansion for the Pricing of Call Options with Discrete Dividends," Applied Mathematical Finance, Taylor & Francis Journals, vol. 19(3), pages 233-264, August.
    3. Black, Fischer, 1976. "The pricing of commodity contracts," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 167-179.
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