Re: [Quantlib-dev] Black Vasicek/Equity option pricing seems ignoring dividend

[Luigi B. <lui...@gm...>]

Hello,
    the paper quoted in the class docs ignores dividends, so I guess the
implementation does that as well.  I'm not sure if a dividend yield can be
added easily to the model.  We should probably document this.

Luigi


On Wed, Sep 8, 2021 at 7:20 PM Lawrence Sum <law...@gm...> wrote:

> Hi Luigi et all,
>
> Recently I used QuantLib 1.22, Visual C++ 2019/Windows for a project and
> discovered that Black Vasicek option pricing seems to be ignoring dividend.
>
> I used the EquityOption.cpp example code to demonstrate the issue below.
> Please let me know if there are some factors that I may have overlooked.
> Thanks in advance.
>
> (1) when dividend = 0
>
>
> Option type = Put
> Maturity = May 17th, 1999
> Underlying price = 36
> Strike = 40
> Risk-free interest rate = 6.000000 %
> Dividend yield = 0.000000 %
> Volatility = 20.000000 %
>
>
> Method                             European      Bermudan      American
> Black-Scholes                      3.844308      N/A           N/A
> ====>Black Vasicek Model                3.818577      N/A           N/A
> Heston semi-analytic               3.844306      N/A           N/A
> Bates semi-analytic                3.844306      N/A           N/A
> Barone-Adesi/Whaley                N/A           N/A           4.459628
> Bjerksund/Stensland                N/A           N/A           4.453064
> Integral                           3.844309      N/A           N/A
> Finite differences                 3.844330      4.360765      4.486113
> Binomial Jarrow-Rudd               3.844132      4.361174      4.486552
> Binomial Cox-Ross-Rubinstein       3.843504      4.360861      4.486415
> Additive equiprobabilities         3.836911      4.354455      4.480097
> Binomial Trigeorgis                3.843557      4.360909      4.486461
> Binomial Tian                      3.844171      4.361176      4.486413
> Binomial Leisen-Reimer             3.844308      4.360713      4.486076
> Binomial Joshi                     3.844308      4.360713      4.486076
> MC (crude)                         3.834522      N/A           N/A
> QMC (Sobol)                        3.844613      N/A           N/A
>
> (2) When dividend is 5%. As you can see  Black Vasicek Model  returns same
> price for dividend=0%.
>
> Option type = Put
> Maturity = May 17th, 1999
> Underlying price = 36
> Strike = 40
> Risk-free interest rate = 6.000000 %
> Dividend yield = 5.000000 %
> Volatility = 20.000000 %
>
>
> Method                             European      Bermudan      American
> Black-Scholes                      4.895555      N/A           N/A
> ====> Black Vasicek Model                3.818577      N/A           N/A
> Heston semi-analytic               4.895554      N/A           N/A
> Bates semi-analytic                4.895554      N/A           N/A
> Barone-Adesi/Whaley                N/A           N/A           5.070904
> Bjerksund/Stensland                N/A           N/A           5.051277
> Integral                           4.895554      N/A           N/A
> Finite differences                 4.895581      5.036359      5.071667
> Binomial Jarrow-Rudd               4.896061      5.037016      5.072378
> Binomial Cox-Ross-Rubinstein       4.894947      5.036011      5.071531
> Additive equiprobabilities         4.897540      5.038650      5.074061
> Binomial Trigeorgis                4.894949      5.036014      5.071534
> Binomial Tian                      4.896303      5.037197      5.072505
> Binomial Leisen-Reimer             4.895554      5.036396      5.071635
> Binomial Joshi                     4.895555      5.036396      5.071635
> MC (crude)                         4.883527      N/A           N/A
> QMC (Sobol)                        4.895873      N/A           N/A
>
> Lawrence Sum
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