en
Preprint
French

Early exercise decision in american options with dividends, stochastic volatility and jumps

Publication date2016
Abstract

Using a fast numerical technique, we investigate a large database of investor suboptimal nonexercise of short maturity American call options on dividend-paying stocks listed on the Dow Jones. The correct modelling 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 by a quarter the amount lost by investors through suboptimal exercise. 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.

Citation (ISO format)
COSMA, Antonio et al. Early exercise decision in american options with dividends, stochastic volatility and jumps. 2016.
Main files (1)
Preprint
accessLevelPublic
Identifiers
  • PID : unige:90206
46views
43downloads

Technical informations

Creation12/09/2016 10:51:00 AM
First validation12/09/2016 10:51:00 AM
Update time03/30/2023 10:45:57 AM
Status update03/30/2023 10:45:57 AM
Last indexation05/02/2024 6:01:32 PM
All rights reserved by Archive ouverte UNIGE and the University of GenevaunigeBlack