Finite-differences pricing engine for dividend options
using escowed dividends model
The Merton-73 engine is the classic engine described in most
derivatives texts. However, Haug, Haug, and Lewis in "Back to
Basics: a new approach to the discrete dividend problem"
argues that this scheme underprices call options. This is set
as the default engine, because it is consistent with the
analytic version.
Finite-differences pricing engine for dividend options using escowed dividends model
The Merton-73 engine is the classic engine described in most derivatives texts. However, Haug, Haug, and Lewis in "Back to Basics: a new approach to the discrete dividend problem" argues that this scheme underprices call options. This is set as the default engine, because it is consistent with the analytic version.