FW: Discrete Dividends on European Options

[Ferghil O'Rourke]

Hi all, I'm still struggling to get correct prices on European options
for stocks that pay dividends using DividendVanillaOption and
AnalyticEuropeanEngine. Is anybody out there doing this successfully?


-----Original Message-----
From: Ferghil O'Rourke [mailto:[hidden email]]
Sent: Thursday, March 23, 2006 6:00 PM
To: '[hidden email]'
Subject: FW: Specifying Dividend Dates

Is anyone using Quantlib to accurately price European options on stocks
that pay discrete dividends? I'm trying various combinations (see below)
but none of my prices match those of two other calculators (which
both match each other).

I also tried dividend discounting the underlying price myself before
pricing, but that doesn't produce a number that matches the others either.
Appreciate any insights.

Thanks,
Ferghil

-----Original Message-----
From: Ferghil O'Rourke [mailto:[hidden email]]
Sent: Thursday, March 23, 2006 12:10 PM
To: '[hidden email]'
Subject: FW: Specifying Dividend Dates

Anyone know if the dividend dates specified to DividendVanillaOption
need to be Monday-Friday dates only? Or does it work this out for
itself? Don't see any handling for it in DividendVanillaOption.cpp

Thanks,
Ferghil

-----Original Message-----
From: [hidden email]
[mailto:[hidden email]] On Behalf Of Ferghil
O'Rourke
Sent: Wednesday, March 22, 2006 10:04 PM
To: [hidden email]
Subject: [Quantlib-users] European Option Price off when discrete dividends

I'm having a problem getting an accurate European option price for
a dividend paying stock. I'm using DividendVanillaOption with
AnalyticDividendEuropeanEngine, passing in the discrete dividend
payments into the DividendVanillaOption ctor. However, I get a
price that is roughly 5% off what I get from two other calculators.
They both give me 5.55 while Quantlib gives 5.28. Can somebody tell
me if I'm using the right classes or if I'm using incorrect parameters?
I suspect the dividend discounting because I usually get accurate
prices for non-dividend paying stocks. Parameter summary as follows.
Thanks.

ExDate = May 16th, 2006
div payment = 0.38
ExDate = August 16th, 2006
div payment = 0.38
ExDate = November 16th, 2006
div payment = 0.38
ExDate = February 16th, 2007
div payment = 0.38
ExDate = May 16th, 2007
div payment = 0.38
ExDate = August 16th, 2007
div payment = 0.38
ExDate = November 16th, 2007
div payment = 0.38
ExDate = February 16th, 2008
div payment = 0.38

European option type = put
Time to maturity = 2.00274
Underlying price = 78.04
Strike = 78.04
Risk-free interest rate = 5.232000 %
Volatility = 18.254690 %

Method                Value                EstimatedError      
Discrepancy        Rel. Discr.
Black-Scholes        5.28243        N/A                0                0





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