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UBC Theses and Dissertations

An iterative method for pricing the American put options with dividends Coman, Florica

Abstract

In this thesis we present a fixed-front approach for pricing the American Put Options with dividends, combined with an iterative method. This approach transforms the free boundary problem into a nonlinear parabolic differential equation defined on a fixed spatial domain. The resulting equation has been solved using an implicit numerical scheme. The method can be easily applied to Barrier Options with dividends and numerical results were shown to compare well with the optimal exercise boundary for different dividend yields and different values of the barrier. All the programming work has been done in MATLAB and sample of codes can be found in Appendix B.

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