I have recently been tasked to work on fair value derivation for futures on equity indices (non-US). I know that the FVD function in Bloomberg can have a huge discrepancy from markets: where cheap is actually expensive and vice versa. How do I determine the accuracy of my model without waiting for expiry?
The main difficulties I have encountered are:
Interest rates for cost of carry (some of the countries have closed FX markets), so what is the closest approximation I should look at?
Some people have mentioned NDFs but I need help on curve construction, best to ask for quotes from NDF traders?
Dividends - big difference from my calculations vs what Bloomberg's BDVD function shows (divisors differ, confirmed ex-dates and FVD missing out on dividends). How do I determine who is right or wrong?
Accuracy of fair value - given that it is only an estimate, how do people trade the calendar spreads? (Might be OT, forgive me)
And if possible, what has your experience been when deriving fair values?