Discrete dividends and the FTSE-100 index options valuation

• Type: Article in International Scientific Journal
• Date: 2014

Authors

Areal, N (Author) Other; Rodrigues, Artur (Author) FEP

Journal

Title: Quantitative Finance

Vol. 14

Pages: 1765-1784

ISSN: 1469-7688

Publisher: Taylor & Francis

Indexing

ISI Web of Knowledge - 0 Citations

Scopus - 1 Citation

Other information

Authenticus ID: P-009-W5S

DOI: 10.1080/14697688.2011.618457

Abstract (EN): This paper studies the effect of discrete dividends on the FTSE-100 index options valuation, following closely Harvey and Whaley's [J. Fut. Mkts, 1992, 12(2), 123-137] study on the S&P-100 index. To the best of our knowledge, no such study has ever been performed on FTSE-100 options, where the dividends have a discreteness pattern different from the S&P-100. Unlike the Harvey and Whaley study, both American and European options are considered, a more accurate benchmark is proposed, and a comprehensive comparison of the accuracy of a larger set of valuation methods is performed. It is shown that there are significant differences in accuracy and speed among different methods, and that, for both American and European options, a great deal of accuracy can be gained by using an approximation that takes into account the discrete nature of the FTSE-100 index option dividends.

Language: English

Type (Professor's evaluation): Scientific

No. of pages: 20