Pricing of general European options on discrete dividend-paying assets with jump-diffusion dynamics

DOI10.1016/J.APM.2018.07.018MaRDI QIDQ2306987zbMATH OpenOpenAlexWikidataFDO

Authors Marianito R. Rodrigo, Joanna Goard

Publication date 27 March 2020

Published in Applied Mathematical Modelling (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1016/j.apm.2018.07.018

zbMATH Keywords

Black-Scholes kerneldiscrete dividendsEuropean optionsjump-diffusion dynamicsMellin transform

Mathematics Subject Classification ID

Jump processes on discrete state spaces (60J74) Derivative securities (option pricing, hedging, etc.) (91G20) Financial applications of other theories (91G80)

Review text

The authors find closed-form solutions for the valuation of European options when the underlying asset is modeled by a jump-diffusion process and pays discrete or continuous dividends. The formula can be used with any specification on the distribution of the jump. Moreover, the formula is written in terms of the Black-Scholes formula with no jumps or dividends, and thus indicates the effect of the jumps and the effect of the inclusion of discrete (or continuous) dividends on the price of the option.

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Cites work

• A note on Mellin transform and distributions
• An alternative approach to solving the Black-Scholes equation with time-varying parameters
• AN APPLICATION OF MELLIN TRANSFORM TECHNIQUES TO A BLACK–SCHOLES EQUATION PROBLEM
• An efficient method for option pricing with discrete dividend payment
• Approximate ordinary differential equations for the optimal exercise boundaries of American put and call options
• Closed formula for options with discrete dividends and its derivatives
• Financial Modelling with Jump Processes
• scientific article; zbMATH DE number 1055921 (Why is no real title available?)
• Option pricing when underlying stock returns are discontinuous
• The Mathematics of Financial Derivatives

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(18)

• European option pricing model with generalized Ornstein-Uhlenbeck process under stochastic earning yield and stochastic dividend yield
• A combined compact difference scheme for option pricing in the exponential jump-diffusion models
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• The pricing of power payoffs European options with continuous dividend
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• Approximate pricing of discrete maximum valued options
• An accurate approximation formula for pricing European options with discrete dividend payments
• Pricing barrier stock options with discrete dividends by approximating analytical formulae
• Discrete dividends and the FTSE-100 index options valuation
• Stochastic Expansion for the Pricing of Call Options with Discrete Dividends
• Closed formula for options with discrete dividends and its derivatives
• On a strongly continuous semigroup for a Black-Scholes integro-differential operator: European options under jump-diffusion dynamics
• Option pricing under time interval driven model
• A novel model for pricing European option with discrete dividends

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