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Published in:
2006 | OriginalPaper | Chapter
American Options With Discrete Dividends Solved by Highly Accurate Discretizations
Authors : C.C.W. Leentvaar, C.W. Oosterlee
Published in: Progress in Industrial Mathematics at ECMI 2004
Publisher: Springer Berlin Heidelberg
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We present an accurate numerical solution for the discrete Black-Scholes equation with only a few grid points. European and American option problems with deterministic discrete dividend modelled by a jump condition at the exdividend date are solved. Fourth order finite differences are employed, as well as a grid stretching in space and a Lagrange interpolation at the ex-dividend date.