Pricing European options on instruments with a constant dividend yield: The randomized discrete-time approach

Rafał Weron

No HSC/02/04, HSC Research Reports from Hugo Steinhaus Center, Wroclaw University of Science and Technology

Abstract: Due to the well known fact that market returns are not normally distributed, we use generalized hyperbolic distributions for pricing options in a randomized discrete-time setup. The obtained formulas can be used for pricing options on stock indexes, currencies and futures contracts. We test them on options written on the Nikkei 225 index futures and conclude that a proper calibration scheme could give us an advantage in the financial market.

Keywords: Option pricing; Dividends; Randomization; Alternative models (search for similar items in EconPapers)
JEL-codes: C16 G13 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2002
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Published in Probability and Mathematical Statistics 22.2 (2002) 417-430.

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http://www.im.pwr.wroc.pl/~hugo/RePEc/wuu/wpaper/HSC_02_04.pdf Final draft, 2002 (application/pdf)
http://www.math.uni.wroc.pl/~pms/files/22.2/Article/22.2.15.pdf Final printed version, 2002 (application/pdf)

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