FW: Discrete Dividends on European Option

Posted by Ferghil O'Rourke on Mar 17, 2006; 7:44am
URL: http://quantlib.414.s1.nabble.com/FW-Discrete-Dividends-on-European-Option-tp4622.html

 

Hi,

I’m looking to price a European option that pays discrete dividends. What’s the

best way to do this?

 

What I do right now is manually discount the pv of the dividend payment(s) from

the underlier’s price before pricing the option using EuropeanOption and

AnalyticEuropeanEngine. This gives me a price that is close, but not exact

compared to some options calculators I’ve been using. Using the above

method I get a price of 1.08, while the calculators give me 1.11.

 

I see DividendVanillaOption takes dividend dates and amounts however,

AnalyticEuropeanEngine seems not to work with it. What’s the correct

combination to price a European option with dividends?

 

Thanks,

Ferghil