From: David B. <db...@ic...> - 2009-02-21 20:05:56
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Klaus- >hmm, european are american style exercise? Which dividend model do you want to >use? I've been thinking this problem over, drawing from my training in theory and experience in application. Here are some Grundlagen: 1) Supposing we have a future dividend with an American Option that occurs on X-date. How can we argue that this dividend can be used in a discounted sense? The dividend acts exactly like a Dirac Function on the cash flow of the Stock Holder, or a step-function on the discount curve. Yet despite all of this we can't justify creating some type of curve because of the Dirac-Like nature of the cashflow. One either has the stock or does not; we can't amortize the days one holds the stock as some percentage of the dividend. This is a problem, clearly. We might be able to rely on a parity argument such as options traders use. More on this later perhaps, as this would act on the post-calculated options prices simply to prevent arbitrage. 2) As for the yield curve itself, I think a PiecewiseYieldCurve object should be sufficient. One could build this off a US-Government HRB Yield Curve daily release and maybe add some small prime-plus factor which would be what the Broker-Dealers actually receive for held cash. Sound good on this one? Best, DB -- View this message in context: http://www.nabble.com/Bates-Engine-for-American-Options-tp22094505p22140024.html Sent from the quantlib-dev mailing list archive at Nabble.com. |