Re: FdDividendAmericanOption doesn't like zero time to dividend

Posted by Marco Marchioro-2 on
URL: http://quantlib.414.s1.nabble.com/FdDividendAmericanOption-doesn-t-like-zero-time-to-dividend-tp2177p2178.html

Hi Vadim,
         note that the vector dividendTimeA should contain the ex-dividend
dates.
If the dividend will be paid today the ex-dividend date is tomorrow,
hence cannot be 0.0(should be a positive small number).

However, if the dividend was paid yesterday you do not need to include
the computation of that dividend in the option your are evaluating today
as long as your stock price include the cash payment of the dividend.

IMHO, these kind of issues should be handled outside FdDividendAmericanOption.

regards,
         Marco Marchioro.

At 12:56 PM 9/10/02 -0500, Vadim Ogranovich wrote:

>Hi,
>
>FdDividendAmericanOption::value() fails, and here is the error message:
>QuantLib::Error::Error: A value must be supplied for this type of boundary
>condition at:../../ql/FiniteDifferences/boundarycondition.hpp:56,
>if the dividendTime is zero.
>
>Could someone please suggest a simple work around? Note that it wouldn't
>suffice to simply remove the dividend and adjust the price by its amount
>since the the option might need to be exercised that day.
>For example I can add some small number to the time, but I am concerned that
>this will effectively push the dividend to the next time step. Is this a
>valid concern?
>
>Thanks, Vadim
>
>P.S> Here is how to reproduce the error
>
>#include <ql/quantlib.hpp>
>
>using namespace std;
>using namespace QuantLib;
>using namespace QuantLib::Pricers;
>
>int main() {
>   const unsigned timeSteps = 20;
>   const unsigned assetSteps = 20;
>
>   vector<double> dividendA, dividendTimeA;
>   dividendA.push_back(0.125);
>   dividendTimeA.push_back(0);           // this is the crux
>
>   double under=40.25;
>   double strike=35;
>   double dividendYield=0;
>   double interestRate=0.05;
>   double expirationTime=0.1;
>   double sigma=0.25;
>
>
>   FdDividendAmericanOption opt(Option::Call, under,
>                                strike,
>                                dividendYield, interestRate,
>                                expirationTime, sigma,
>                                dividendA, dividendTimeA,
>                                timeSteps, assetSteps);
>
>
>   double x = opt.value();
>
>   return 0;
>}
>
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