Closed formula for options with discrete dividends and its derivatives
Closed formula for options with discrete dividends and its derivatives
Faculty of Sciences. Mathematics and Computer Science

article

2009
London
, 2009

Economics

Mathematics

Applied mathematical finance. - London

16(2009)
:6
, p. 517-531

1350-486X

E

English (eng)

We present a closed pricing formula for European options under the BlackScholes model as well as formulas for its partial derivatives. The formulas are developed making use of Taylor series expansions and a proposition that relates expectations of partial derivatives with partial derivatives themselves. The closed formulas are attained assuming the dividends are paid in any state of the world. The results are readily extensible to time-dependent volatility models. For completeness, we reproduce the numerical results in Vellekoop and Nieuwenhuis, covering calls and puts, together with results on their partial derivatives. The closed formulas presented here allow a fast calculation of prices or implied volatilities when compared with other valuation procedures that rely on numerical methods.

https://repository.uantwerpen.be/docman/iruaauth/713ede/8ba15c45010.pdf