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Extracting Implied Dividends from Options Prices: some Applications to the Italian Derivatives Market

Author

Listed:
  • Martina Nardon

    () (Dept. of Applied Mathematics, University Ca'Foscari of Venice)

  • Paolo Pianca

    () (Dept. of Applied Mathematics, University Ca'Foscari of Venice)

Abstract

This contribution deals with options on assets which pay discrete dividends. We analyze some methodologies to extract information on dividends from observable option prices. Implied dividends can be computed using a modified version of the well known put-call parity relationship. This technique is straightforward, nevertheless, its use is limited to European options and, when dealing with equities, most traded options are of American-type. As an alternative, numerical inversion of pricing methods can be used. We apply different procedures to obtain implied dividends of stocks of the Italian Derivatives Market.

Suggested Citation

  • Martina Nardon & Paolo Pianca, 2010. "Extracting Implied Dividends from Options Prices: some Applications to the Italian Derivatives Market," Working Papers 198, Department of Applied Mathematics, Universit√† Ca' Foscari Venezia.
  • Handle: RePEc:vnm:wpaper:198
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    File URL: http://virgo.unive.it/wpideas/storage/2010wp198.pdf
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    More about this item

    Keywords

    Implied dividends; put-call parity; option pricing; binomial methods.;

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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