Strike reset options ex divs

sarastro · May 21st, 2003, 8:11 am

Hi,could anyone give me a hint? I am looking for informations about a type of reset option:after each dividend day the strike of the option is reset to a new level "old strike - dividend paid". Any papers known on this type of option?Thanks

AVt · May 21st, 2003, 12:52 pm

You may have a look at the paper <a target=new class=ftalternatingbarlinklarge href="http://www.wilmott.com/310/attachments/ ... vidends</a>, which Alan Lewis posted in the tread <a target=new class=ftalternatingbarlinklarge href="http://www.wilmott.com/310/messageview. ... 381">Stock Dividends and Volatility Landscapes</a> I forgot to add the suggestion: use c ( S1 - D, oldStrike - D)

Aaron · May 22nd, 2003, 9:28 pm

In addition to the paper below, I recommend a search on "payout protected options" as this is the general term for resets or other features that attempt to make the option value independent of payouts. The most common payout protection is to leave the exercise price the same, but require delivery of the underlying security plus any accumulated payouts (plus, maybe, interest on accumulated payouts).