Using a fast numerical technique, we investigate a large database of investors’ suboptimal nonexercise of short-maturity American call options on dividend-paying stocks listed on the Dow Jones. The correct modeling of the discrete dividend is essential for a correct calculation of the early exercise boundary, as confirmed by theoretical insights. Pricing with stochastic volatility and jumps instead of the Black–Scholes–Merton benchmark cuts the amount lost by investors through suboptimal exercise by one-quarter. The remaining three-quarters are largely unexplained by transaction fees and may be interpreted as an opportunity cost for the investors to monitor optimal exercise.
(2020). Early exercise decision in American options with dividends, stochastic volatility and jumps [journal article - articolo]. In JOURNAL OF FINANCIAL AND QUANTITATIVE ANALYSIS. Retrieved from https://hdl.handle.net/10446/239350
Early exercise decision in American options with dividends, stochastic volatility and jumps
Cosma, Antonio;
2020-01-01
Abstract
Using a fast numerical technique, we investigate a large database of investors’ suboptimal nonexercise of short-maturity American call options on dividend-paying stocks listed on the Dow Jones. The correct modeling of the discrete dividend is essential for a correct calculation of the early exercise boundary, as confirmed by theoretical insights. Pricing with stochastic volatility and jumps instead of the Black–Scholes–Merton benchmark cuts the amount lost by investors through suboptimal exercise by one-quarter. The remaining three-quarters are largely unexplained by transaction fees and may be interpreted as an opportunity cost for the investors to monitor optimal exercise.File | Dimensione del file | Formato | |
---|---|---|---|
1-CosmaJFQA2020a.pdf
Solo gestori di archivio
Versione:
publisher's version - versione editoriale
Licenza:
Licenza default Aisberg
Dimensione del file
457.44 kB
Formato
Adobe PDF
|
457.44 kB | Adobe PDF | Visualizza/Apri |
Pubblicazioni consigliate
Aisberg ©2008 Servizi bibliotecari, Università degli studi di Bergamo | Terms of use/Condizioni di utilizzo