Search results

1 – 1 of 1
Per page
102050
Citations:
Loading...
Access Restricted. View access options
Article
Publication date: 30 October 2009

João Amaro de Matos, Rui Dilão and Bruno Ferreira

The purpose of this paper is to present an arbitrarily accurate approximation for the value of European options written on a Black‐Scholes stock paying a discrete dividend.

425

Abstract

Purpose

The purpose of this paper is to present an arbitrarily accurate approximation for the value of European options written on a Black‐Scholes stock paying a discrete dividend.

Design/methodology/approach

The proposed method is a computational method for the analytical solution of the problem.

Findings

It was found that the proposed method is computationally faster than any other exact computational available method, including Monte‐Carlo simulations.

Research limitations/implications

The method is applied for a single dividend payment, but can be extended for several payments. The exact amount of the dividend must be known ex‐ante, as well as the precise date of payment.

Practical implications

The paper provides the most efficient way to compute with absolute precision the value of European options on dividend‐paying assets, under the Black‐Scholes assumption.

Originality/value

The computing time in the approach is several orders of magnitude faster than with traditional Monte Carlo methods, for the same desired accuracy.

Details

Journal of Modelling in Management, vol. 4 no. 3
Type: Research Article
ISSN: 1746-5664

Keywords

1 – 1 of 1
Per page
102050