Mardi | 2016-01-12
Sully 5 de 16 à 17h20

Olivier SCAILLET – Antonio COSMA – Stefano GALLUCCIO – Pederzoli PAOLA

We introduce a fast and widely applicable numerical pricing method by recursive projections. We characterise its convergence speed. We find that the early exercise boundary of an American call option on a discrete dividend paying stock is higher under the Merton and Heston models than under the Black-Scholes model, as opposite to the continuous dividend yield case. A large database of call options on stocks with quarterly dividends shows that adding stochastic volatility and jumps to the Black-Scholes benchmark reduces by 25% the amount foregone by call holders failing to optimally exercise. Fees cannot fully explain the suboptimal behavior.