Errata for ‘Back to Basics: a new approach to the discrete dividend problem’

Here is a small correction to Table 6 in this 2003 article by E.G. Haug, J. Haug, and A. Lewis.

THHL
(Published value)
HHL
(Corrected value)
110.660610.6606
215.198915.2007
318.598418.6002

Table 6 shows various approximations to the value of a European call option under discrete dividends, with multiple dividends. The table column labeled ‘HHL’ is referred to as an ‘exact integration’. This language suggests that all the displayed digits should be correct. However, a careful reader was attempting to replicate those values and did not agree with all the digits. (Thank you, Yiannis!). Rerunning the codes a little more carefully yields new best estimates shown above. Note the T = 1 entry is unchanged. The revised entries also agree, to the digits shown, with the mentioned reader’s independent calculations, which use a different method.

I frequently refer to this article in Ch. 9 of ‘Option Valuation under Stochastic Volatility II’. In particular, under ‘Suggested reader projects’ I suggest the reader extend the chapter numerics to call options and compare results to the HHL tables. So, for those who might be doing that, the above small revisions may be meaningful.

References

Espen G. Haug, Jørgen Haug, and Alan Lewis. Back to Basics: a new approach to the discrete dividend problem. Wilmott magazine, pgs. 37-47, Sept. 2003

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