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tangkm
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Joined: April 13th, 2021, 12:05 pm

American option pricing (multiple dividends case)

January 14th, 2023, 1:53 pm

Hi guys, I want to price an american option where the underlying stock has multiple discrete dividend payouts. Which numerical methods are commonly used in the industry? It doesn't need to be super accurate but it can't be slow. Thanks.
 
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Alan
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Re: American option pricing (multiple dividends case)

January 14th, 2023, 4:33 pm

I'd recommend the Vellekoop-Nieuwenhuis (VN) tree: (link), and also the discussion in 
Ch. 9 ('Back to Basics: An Update on the Discrete Dividend Problem') in my book 
In the Appendix to that chapter, I give C-code for the VN tree (posted here)