Comparison of American Binomial Options with Discrete and Continuous Dividend

Dian Ayu Merdekawati, Yolanda Norasia, Charisma Juni Kumalasari, Endah Rokhmati Merdika Putri

Abstract


This study discusses the effect of dividend on option pricing by using a binomial method. It also investigated the initial stock value, number of steps, and strike price effects on the behavior of options pricing. From several simulations conducted, it was found that the values of call options with discrete dividend are greater than the continuous dividend. While on the put option, the values of the put options with a continuous dividend are greater than the discrete dividend.

Keywords


Option Pricing; American Option; Binomial Method; Dividend

Full Text:

PDF

References


J. Cox, S. Ross, and M. Rubinstein, “Option pricing: A simplified approach,” Journal of financial Economics, vol. 7, no. 3, pp. 229–263, 1979.

M. Gilli and E. Schumann, “Implementing binomial trees,” Available at SSRN 1341181, 2009.

G. Barone-Adesia, N. Fusarib, and J. Thealc, “Binomial lattices for barrier options,” Quantitative and Qualitative Analysis in Social Sciences, vol. 2, no. 2, pp. 63–70, 2008.

B. Peng and F. Peng, “Pricing jump diffusion american call option with dividends,” in 2nd IEEE International Conference on Information and Financial Engineering, 2010, pp. 827–831.

G. Jiang, S. Wang, and H. Dong, “Valuation and optimal exercise time of american call option on stock paying stochastic dividends,” in 3rd International Workshop on Intelligent Systems and Applications, 2011, pp. 1–4.




DOI: http://dx.doi.org/10.12962/j24775401.v6i2.4283

Refbacks

  • There are currently no refbacks.



View My Stats


Creative Commons License
International Journal of Computing Science and Applied Mathematics by Pusat Publikasi Ilmiah LPPM, Institut Teknologi Sepuluh Nopember is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
Based on a work at https://iptek.its.ac.id/index.php/ijcsam.