Extracting information on implied volatilities and discrete dividends from American options prices

Martina Nardon () and Paolo Pianca

No 2012_25, Working Papers from Department of Economics, University of Venice "Ca' Foscari"

Abstract: This contribution deals with options on assets which pay cash dividends. Pricing methods which consider discrete dividends are usually computationally expensive; a first purpose of this paper is to study efficient and accurate numerical procedures which yield consistent prices for both European and American options in the presence of discrete dividends. We then analyze some methodologies to extract information on volatilities and dividends from observable option prices. Implied dividends can also 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 volatilities and dividends of listed stocks of the Italian Derivatives Market.

Keywords: Options on stocks; discrete dividends; lattice methods; implied volatilities; implied dividends. (search for similar items in EconPapers)
JEL-codes: C63 G13 (search for similar items in EconPapers)
Pages: 25
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.unive.it/web/fileadmin/user_upload/dip ... don_pianca_25_12.pdf First version, 2012 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ven:wpaper:2012_25

Access Statistics for this paper

More papers in Working Papers from Department of Economics, University of Venice "Ca' Foscari" Contact information at EDIRC.
Bibliographic data for series maintained by Sassano Sonia ().