| Hello
I have a question about discretes dividends in the binomial convertible bond pricing engine
It seems that
The grid is computed with spot - sum{ NPV(dividends) }
After in the backward computation, we add in the grid the dividends (just dividend not the NPV of dividend)
--> in the last value of grid (ie grid[0][0]) the value is spot - Sum(NpV(Div)) + Sum(Div) != Spot
It is not better to add back in the grid the NPV of dividends ?
like in the hull book chapter 18.3 (5th edition)
Regards
Benoît
In pricingengines/hybrid/binomialconvertibleengine.hpp
-->the grid will be computed with spot - sum{ NPV(dividends) }
// subtract dividends
Size i;
for (i=0; idate() >= referenceDate)
s0 -= arguments_.dividends[i]->amount() *
process_->riskFreeRate()->discount(
arguments_.dividends[i]->date());
}
In pricingengines/hybrid/discretizedconvertible.cpp
in the grid we add just dividend
Disposable DiscretizedConvertible::adjustedGrid() const {
Time t = time();
Array grid = method()->grid(t);
// add back all dividend amounts in the future
for (Size i=0; i= t || close(dividendTime,t)) {
const boost::shared_ptr& d = arguments_.dividends[i];
for (Size j=0; jamount(grid[j]);
}
}
return grid;
|
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