Pricing Derivatives Under A Gains Tax Regime: New Impacts

Wöster C (2006) Discussion paper / Fakultät für Wirtschaftswissenschaften, Universität Bielefeld, 559.
Bielefeld: Universität Bielefeld.

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Three years after the seminal work of Black and Scholes on the pricing of European options, Scholes presented a paper in which the impact of taxation on the value of an option is analyzed. We restart this discussion in a simple binomial setting emphasizing the economic principles of replicating strategies under taxation. Two perspectives will be introduced. The first one focuses on replicating payoff structures if the underlying assets are taxed. The second one discusses the influence of a tax system on a given contract specification. The limit results lead to a pricing formula in closed form suggesting a modification of the partial differential equation derived by Scholes. We claim that the value of the option is influenced by taxation even if gains of all relevant assets are taxed with the same rate. Furthermore, we demonstrate that the difference between numerical and closed form solutions are negligible in acceptable computing time. Thus the algorithmic schemes can be used as a base for pricing of complex options under taxation.
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Wöster C. Pricing Derivatives Under A Gains Tax Regime: New Impacts. Discussion paper / Fakultät für Wirtschaftswissenschaften, Universität Bielefeld, 559. Bielefeld: Universität Bielefeld; 2006.
Wöster, C. (2006). Pricing Derivatives Under A Gains Tax Regime: New Impacts (Discussion paper / Fakultät für Wirtschaftswissenschaften, Universität Bielefeld, 559). Bielefeld: Universität Bielefeld.
Wöster, C. (2006). Pricing Derivatives Under A Gains Tax Regime: New Impacts. Discussion paper / Fakultät für Wirtschaftswissenschaften, Universität Bielefeld, 559, Bielefeld: Universität Bielefeld.
Wöster, C., 2006. Pricing Derivatives Under A Gains Tax Regime: New Impacts, Discussion paper / Fakultät für Wirtschaftswissenschaften, Universität Bielefeld, 559, Bielefeld: Universität Bielefeld.
C. Wöster, Pricing Derivatives Under A Gains Tax Regime: New Impacts, Discussion paper / Fakultät für Wirtschaftswissenschaften, Universität Bielefeld, 559, Bielefeld: Universität Bielefeld, 2006.
Wöster, C.: Pricing Derivatives Under A Gains Tax Regime: New Impacts. Discussion paper / Fakultät für Wirtschaftswissenschaften, Universität Bielefeld, 559. Universität Bielefeld, Bielefeld (2006).
Wöster, Christoph. Pricing Derivatives Under A Gains Tax Regime: New Impacts. Bielefeld: Universität Bielefeld, 2006. Discussion paper / Fakultät für Wirtschaftswissenschaften, Universität Bielefeld, 559.
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