Take the 2-minute tour ×
Quantitative Finance Stack Exchange is a question and answer site for finance professionals and academics. It's 100% free, no registration required.

Under the Longstaff-Schwartz LSM method for an American call, how should I account for a continuous dividend paying stock? I assume that it'll needs to be accounted for when simulating the underlying GBM stock paths but is there anywhere else where it differs from the LSM on a non-dividend paying stock?

share|improve this question
    
Nope, that's all. Of course, discrete dividends are much easier to handle in MC than in trees, so you might want to go discrete anyway. Then again LSMC is so inaccurate you won't gain much from using discrete divs unless the dividends are huge. –  Brian B Nov 8 '13 at 14:58

Your Answer

 
discard

By posting your answer, you agree to the privacy policy and terms of service.

Browse other questions tagged or ask your own question.