Assume we have the constant growth Gordon model, for a stock paying dividend $D$,Earnings per Share $EPS$, annual growth rate $g=ROE*(1-\frac{D}{EPS})$ and discount rate $r$. Then:

$IV=\frac{D*(1+g)}{r-g}$. In this particular case, we consider that dividends are being paid 1 year from now. My though on this:

Assume that last dividend was paid yesterday, annual payments. Then today: $IV_0=\frac{D*(1+g)}{r-g}$ Tommorow: $IV_1=IV_0*(1+\frac{r}{365})$ in 2 days, $IV_2=IV_1*(1+\frac{r}{365})$ ...

Is the a better method of estimating daily IV, adjusting to a different discount rate?


Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.