Accurate formulas for evaluating barrier options with dividends payout and the application in credit risk valuation

Tian-Shyr Dai; Chun Yuan Chiu

doi:10.1007/978-1-4614-7750-1_65

Accurate formulas for evaluating barrier options with dividends payout and the application in credit risk valuation

Tian-Shyr Dai, Chun Yuan Chiu

Department of Information Management and Finance

Research output: Chapter in Book/Report/Conference proceeding › Chapter › peer-review

1 Scopus citations

Abstract

To price the stock options with discrete dividend payout reasonably and consistently, the stock price falls due to dividend payout must be faithfully modeled. However, this will significantly increase the mathematical difficulty since the post-dividend stock price process, the stock price process after the price falls due to dividend payout, no longer follows the lognormal diffusion process. Analytical pricing formulas are hard to be derived even for the simplest vanilla options.

Original language	English
Title of host publication	Handbook of Financial Econometrics and Statistics
Publisher	Springer New York
Pages	1771-1800
Number of pages	30
ISBN (Electronic)	9781461477501
ISBN (Print)	9781461477495
DOIs	https://doi.org/10.1007/978-1-4614-7750-1_65
State	Published - 1 Jan 2015

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10.1007/978-1-4614-7750-1_65

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Accurate formulas for evaluating barrier options with dividends payout and the application in credit risk valuation

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