Abstract
This contribution deals with options on assets which pay discrete dividends. We analyze some methodologies to extract information on dividends from observable option prices. Implied dividends can be computed using a modified version of the well known put-call parity relationship. This technique is straightforward, nevertheless, its use is limited to European options and, when dealing with equities, most traded options are of American-type. As an alternative, numerical inversion of pricing methods can be used. We apply different procedures to obtain implied dividends of stocks of the Italian Derivatives Market.
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Notes
- 1.
In the case of multiple dividends, \( D e^{ - rt_D } \)
- 2.
The interpolation procedure here described can be applied also to other numerical schemes, such as finite difference schemes for the pricing of European and American options.
- 3.
Other interpolation schemes can be considered.
- 4.
- 5.
Calibration can be an alternative solution to the problem
- 6.
Alternatively, an interpolated binomial method with 1 000 or 2 000 steps provides the same results. Moreover, a very fast algorithm have been implemented.
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© 2012 Springer-Verlag Italia
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Nardon, M., Pianca, P. (2012). Extracting implied dividends from options prices: Some applications to the Italian derivatives market. In: Perna, C., Sibillo, M. (eds) Mathematical and Statistical Methods for Actuarial Sciences and Finance. Springer, Milano. https://doi.org/10.1007/978-88-470-2342-0_37
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DOI: https://doi.org/10.1007/978-88-470-2342-0_37
Publisher Name: Springer, Milano
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