A plane-wave semiempirical pseudopotential method with nonlocal potentials and spin-orbit coupling is used to calculate the electronic structure of surface-passivated wurtzite CdSe quantum dots with up to 1000 atoms. The calculated optical absorption spectrum reproduces the features of the experimental results and the exciton energies agree to within \ensuremath{\sim}0.1 eV over a range of dot sizes. The correct form of Coulomb interaction energy with size-dependent dielectric constant is found to be essential for such good agreement. \textcopyright{} 1996 The American Physical Society.