An efficient binomial approach to the pricing of options on stocks with cash dividends

In this contribution, we consider options written on stocks which pay cash dividends. Dividend payments have an effect on the value of options: high dividends imply lower call premia and higher put premia. While exact solutions to problems of evaluating both European and American call options and European put options are available in the literature, for American-style put options early exercise may be optimal at any time prior to expiration even in the absence of dividends. In this case numerical techniques, such as lattice approaches, are required. Discrete dividends produce a shift in the tree; as a result, the tree is no longer reconnecting beyond any dividend date. Methods based on non-recombining trees give consistent results, but they are computationally expensive. We analyze binomial algorithms and performed some empirical experiments

Opzioni su titoli che pagano dividendi: proprietà e tecniche di valutazione

Nell'affrontare il problema della valutazione di opzioni emesse su titoli azionari si deve tenere in considerazione la presenza del pagamento di uno o piµu dividendi. Tale problema risulta particolarmente importante anche per le negoziazioni del mercato italiano, soprattutto in seguito all'emissione dei contratti di opzione a lunga scadenza da parte di Borsa Italiana SpA. Solo recentemente µe stata proposta in letteratura una soluzione analitica che puµo essere utilizzata nel caso di opzioni call europee e americane e di opzioni put europee. Per le opzioni put americane si deve ricorrere a metodi di valutazione di tipo numerico, primo fra tutti il metodo degli alberi binomiali che nelle sperimentazioni eseguite ha fornito ottime approssimazioni dei valori analitici. L'impiego del metodo binomiale richiede, peraltro, qualche accorgimento in quanto dopo lo stacco di un dividendo l'albero non ricombina dando luogo a una crescita non lineare nel numero dei nodi nei vari stadi. In questo contributo verranno analizzati alcuni modelli di valutazione di opzioni emesse su attività che pagano dividendi; particolare attenzione sarµa rivolta al modello proposto da Haug et al. (2003) e ad alcuni metodi binomiali. Infine, verranno presentati alcuni esempi numerici

Prospect theory: An application to European option pricing

Empirical studies on quoted options highlight deviations from the theoretical model of Black and Scholes; this is due to different causes, such as assumptions regarding the price dynamics, markets frictions and investors’ attitude toward risk. In this contribution, we focus on this latter issue and study how to value European options within the continuous cumulative prospect theory. According to prospect theory, individuals do not always take their decisions consistently with the maximization of expected utility. Decision makers have biased probability estimates; they tend to underweight high probabilities and overweight low probabilities. Risk attitude, loss aversion and subjective probabilities are described by two functions: a value function and a weighting function, respectively. In our analysis, we use alternative probability weighting functions. We consider the pricing problem both from the writer’s and holder’s perspective, obtaining an interval for the prices of call and put options

Implied volatilities of American options with cash dividends: an application to Italian Derivatives Market (IDEM)

In this contribution, we study options on assets which pay discrete dividends. We focus on American options, as when dealing with equities, most traded options are of American-type. In particular, we analyze implied volatilities in the model proposed by Haug et al. [12] and in the binomial model, with an application to the Italian Derivatives Market

Discrete monitoring correction of American options exercise

Not to be quoted without permission of the authors. A convenient two-step Monte Carlo simulation procedure enables to deepen the study of the exercise of American options. In particular, it is possible to analyze the optimal exercise time and the probability that the option is exercised at or before maturity. Nevertheless, the results obtained with a simulation method are affected by a bias due to discrete monitoring. In this contribution we first study how the discrete monitoring affects the estimation of the exercise features of American options. In particular, the optimal exercise times turn out to be heavily affected by the width of the monitoring interval. Furthermore, we propose some extrapolation method that apply the Richardson extrapola-tion technique in order to accelerate the convergence and reduce the effects of this monitoring bias. A wide simulation analysis is carried out in order to test the accuracy of the extrapola-tion procedures proposed.

Visual and written discourses of British commemorative war monuments

This thesis analyses commemorative war monuments using a social semiotic approach to understand how they communicate as three-dimensional objects, considering their design alongside contextual information. Taking a social semiotic approach to the study of commemorative war monuments, it responds to calls by historians for innovative ways to study war commemoration by providing an approach that offers both specific analysis of the objects and attends to matters of design.EThOS - Electronic Theses Online ServiceGBUnited Kingdo

Covered call writing in a cumulative prospect theory framework

The covered call writing, which entails selling a call option on one’s underlying stock holdings, is perceived by investors as a strategy with limited risk. It is a very popular strategy used by individual, professional and institutional investors; moreover, the CBOE developed the Buy Write Index (BXM) which tracks the performance of a synthetic covered call strategy on the S&P500 Index. Previous studies analyze behavioral aspects of the covered call strategy, indicating that hedonic framing and risk aversion may explain the preference of such a strategy with respect to other designs. In this contribution, following this line of research, we extend the analysis and apply Cumulative Prospect Theory in its continuous version to the evaluation of the covered call strategy and study the effects of alternative framing