On the value of european options on a stock paying a discrete dividend at uncertain date

• Autor(a) principal: Pereira, José António Gomes de Sousa
• Data de Publicação: 2017
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10362/25865
• topic: European options; Discrete dividends; Uncertain ex-dividend date; Domínio/Área Científica::Ciências Sociais::Economia e Gestão

The purpose of this paper is to evaluate the impact of uncertainty about the dividend date on the value of European options in the context of the Black-Scholes model. We use an arbitrarily accurate numerical approximation for the value of this type of instrument on a stock paying a discrete dividend, considering di erent probability distributions over the date of dividend payment, and comparing with the deterministic case. We nd that the main determinant is the skewness of the probabilistic distribution. For positive skewness, uncertainty about the dividend payment day decreases the value of the option, and negative skewness has the opposite e ect for standard parameters. However, if interest rates are negative, volatility is small enough and the option is su ciently in the money, the impact of uncertainty is reverted. The understanding of this mechanism may have practical implications for hedging strategies.