Questions tagged [dividends]
A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits.
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Difference between S&P 500 index and S&P 500 Total Return index?
There's the standard S&P 500 index (SPX) and the rarer used S&P 500 Total Return index (SPTR). If you compare graphs, you'll find that the latter grows faster. Supposedly, SPTR assumes ...
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Stochastic modelling of derivatives on dividends
I consider pricing and risk analysis of derivatives on dividends of the members of equity indices (such as Dow Jones EuroStoxx). There are options but I focus on futures.
What are common stochastic ...
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Implied dividend estimation
I am looking at two different ways of estimating the expected / implied dividends from market data.
1. Dividend futures
I know that this asset class is not very liquid and might not be ...
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Term structure of Equity returns
What is the meaning of term structure of equity returns.
I know what term structure of interest rates means, but somehow i cant seem to relate them.
Also, how would we measure them?
Also in this paper ...
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Implied vol and model calibration for an american option on a dividend paying stock - is there a market standard pricing model?
In terms of calibrating a pricing model to observed prices for American options on a dividend paying stock, is there a standard way of doing this in practice?
My initial thought was to use CRR ...
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Cochrane on Return Predictability
Being a lover of Sir Arthur Conan Doyle's work, I picked up a copy of Cochrane’s 2008 paper, The Dog That Did Not Bark: A Defense of Return Predictability and read:
If returns are not predictable, ...
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Implied Dividend from American Options (in practice)
I just tried to price the implied dividend for a few active, liquid options markets using current prices and I am not convinced my results are accurate.
I am using American options, and using the put-...
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How to price lookback american option when its payment is distributed during its life
I would like to price a floating strike american lookback with a particular feature: I don't want to charge upfront the client, rather I would like to insert a "running fee", some sort of a dividend.
...
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Why do we use the letter $q$ for dividends?
In derivative pricing models, we often use the letter $q$ to designate the dividend yield i.e.:
$$\textrm{d}S_t=S_t((\mu-q) \textrm{d}t+\sigma\textrm{d}W_t)$$
for the price process $S$ of the stock.
...
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Option pricing ? Where to get the dividend yield from?
I'm trying to apply Black & Scholes formula for a real example to price a vanilla equity option but I'm strugling a little bit whith the dividend yield.
Let's assume I have a stock that trades at ...
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CRSP: Return including dividends
Using CRSP data, I tried to compute the historical returns (including dividends) of stocks according to
Total Return = (adjprc + (divamt / cumfacpr / facpr)) / prev_adjprc – 1,
where divamt is the ...
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Dividend Index Futures
My question is dealing with the proportionality between Dividend Index Futures prices and Index prices. Indeed, we in the past we used to do a simple regression between these variables and use the ...
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Black Scholes and high dividend paying stocks
I understood there were 3 alternative methods of dealing with dividends in BS:
1) using a continuous dividend yield as an input; or
2) setting dividends to zero and subtracting the PV of divs from the ...
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Total Returns From Adjusted Close Prices
I'm trying to understand why the total return (return including dividends) that I get from calculating return using adjusted close price, does not equal the total return calculated in another manner.
...
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Replication of a dividend swap
I wanted to know how banks replicate dividend swap, my best guess is to take the spread between a Total Return Swap and a Forward.
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Risk factors for derivatives on dividends
I consider pricing and risk analysis of derivatives on dividends of the members of equity indices (such as Dow Jones EuroStoxx). There are options but I focus on futures.
What are the main risk ...
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How to derive forward price on stock with continuous dividend
Let $F_{t,T}$ be the forward price of a stock $S$ at time $T$ and $t$ be the current time. The stock pays a proportional continuous dividend at a rate of $q$ and the risk-free rate is $r$. How can I ...
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The Dog That Did Not Bark?
I've been reading Cochrane's 2006 paper "The Dog that did not bark: A Defense of Return Predictability", but i am still struggling to understand what the dog was, and why it wasn't barking?
If anyone ...
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Equity Forward Price calculation
In the book of John Hull, the price of an equity forward on a dividend paying stock is formulated as:
$$F_0 = (S_0 - I)e^{rT} $$
where $r$ is the risk free rate and $I$ is present value of the stream ...
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A question about exercise from "Paul Wilmott introduces Quantitative Finance"
I am new on this forum and i have just begun my adventure with finances, so please be patient.
I was solving exercises from "Paul Wilmot introduces Quantitative Finance" and i came across ...
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Why is the dividend risk of an option equal to its delta?
In this document, https://www.eurexgroup.com/blob/2435406/f1b0086a8c6d05954c58a8dc24308c81/data/20160304_Colin-Bennent-Trading-Volatility-.pdf, it states that
"This is because the dividend risk of ...
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Dividend and Gain process in paper by Brigo, Buescu, Pallavicini and Liu
In the paper Illustrating a problem in the self-financing condition in two 2010-2011 papers on funding, collateral and discounting (2012) (link) from Brigo, Buescu, Pallavicini and Liu, the above ...
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Discounting dividends and terminal value in valuation
I am new to finance and valuation in particular. I have a query regarding discounting dividends and terminal value for valuation using dividend discount model.
I have created an illustration to help ...
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Impact of Discrete and linear dividends on Local Volatility model
I am trying to understand the assumptions and weaknesses of a Dupire Local Volatility model.
If dividends are assumed linear, is it a problem for model calibration? If yes, why?
Why would large values ...
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Why not discount the dividend in the european put lower bound condition?
According to the european put lower bound condition:
$ p \geq max(D + K \cdot e^{-r(t_2-t_0)} - S_0, 0)$
where $t_0$ is now and $t_2$ is maturity. Say $t_1$ is the dividend release time where $t_0&...
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Structured product sellers and div swaps
From a Barclays primer on dividend swaps:
We note that for shorter periods of time, implied dividends can be more volatile than spot as dividends often trade away from ...
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Why can only non-dividend paying assets serve as numeraire?
In Kerry Back, A Course in Derivative Securities, Sect. 1.4 (page 29), the author stated the FTAP in the following form (in boldface):
If there are no arbitrage opportunities,
then for each (non-...
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What is the analogue used by Hull to price European calls with known cash dividends?
From The Book by Hull:
And Hull's comment:
This rule is analogous to the one developed in Section 14.12 for valuing a European option on a stock
paying known cash dividends. (In that case we ...
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Dividend as a function of stock
Let's say I have a stock that pays dividend once a year. I know how much did it pay in 2014, and at which level was stock trading when the dividend decision was made. I'd like to use these data to ...
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Forward on a stock with Dividends
I have seen the question here and have gone through the answer, but I still don't fully understand why the approach below, based on no-arbitrage, yields a different answer.
To summarize:
At time $t_0$...
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How should I decide the yield rate when calculate the spx implied volatility?
I am wondering how the industry decides the yield rate for a certain maturity when calculating the implied volatility for the SPX option.
Is it just a simple linear interpolation from the two near ...
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How to calculate dividend yield - option pricing
Hey how do you calculate the dividend rate if you want to price your stock options eg apple? Just take the dividends paid last year and divide by today's share price? This page reports 0.85% (https://...
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European put options
Why is it that for European Puts on Non-Dividend-Paying Stocks, the lower-bound for price is $$p=Ke^{-rT}-S_0?$$
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Getting rate from a share's given futures price, with known dividend information
Question was answered by @Ezy - thanks!
This seems to be a basic question, but mysteriously unsolvable as far as I can see.
It concerns calculating the interest rate from a given stock futures ...
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Calculating the theoretically fair value of this futures contract by assuming monthly compounding
I need a help for the following question:
A stock index is constructed by including only two stocks in the index. One of the stocks (Stock $1$)
currently sells for $250$ dollar and the other stock (...
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Delta one trading: dependence on repo rate?
I have heard a delta-one trader mentioning the dependency of its activity on interest rates, dividend yields and repo rates.
While I can understand the exposure he has to interest rates and dividend ...
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Binomial Tree Option Pricing Model. Lets talk dividends and futures
I am writing an option pricing model for production use. Its not for arb or anything so it doesn't need to be 100% as accurate as possible. Just good enough for "what happens to my book if we jump 10 ...
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Gordon's dividend valuation model: Ignoring optionality
Currently studying some papers on Behavioral Finance (the dividend puzzle), which employ some basic valuation models, calculating stock's fundamental value $P_t$. The most known is the discount of ...
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Is an options implied dividends DCF model consistent with risk neutral/arbitrage-free valuation?
We're talking about how we price every financial instrument: by discounting the payoff, that is, we take future cash flows and we discount them by a proper rate which takes into account the risk of ...
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Rigorous formula for adjusted close price
I'm a mathematician who is new to the stock market, and I'm hoping to shine a rigorous light on a simple example of adjusting close prices for, say, dividends.
Let time $t$ represent today. Say that ...
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Reinvesting the dividends of a dividend paying stock
Suppose we have a dividend paying stock that has the following dynamics:
$$dS_t=S_t((\mu-q)dt+\sigma dW_t)$$
With a continuous dividend yield $q$. What is the portfolio $Y_t$ that results out of ...
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Spot/div correlation for autocalls
I cannot find much litterature on the effect of the spot/div correlation or the shape of the spot/div cross gamma concerning the autocallable structures.
In a general way, could someone present an ...
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Are there any APIs to retrieve stock buybacks and dividends to calculate ERP?
I'm in the process of building a Python library to value stocks using a FCF model and one of the first steps is calculating an implied equity premium. I know there a few ways of doing this, but ...
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How to find the risk-free rate and dividend rate for S&P 500 index options?
I'm currently working on a project using S&P 500 index options(European) data. I haven't done any empirical experiments before, so I'm confused how to find the corresponding risk-free rate and the ...
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Asset pricing and dividend discount model
I want to derive the dividend discount model from the asset pricing formula described in "Efficient Capital Markets: A Review of Theory and Empirical Work" by Eugene Fama 1970. The formula that I am ...
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Extrapolating implied dividend yield
I have liquid option quotes for 1, 2, 3 and 4y expiries. I was able to imply the continuous dividend yield for all of those. How would you extrapolate such implied yield to 5 and 6y expiries?
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Dividend yield for an index
Let's say we want to price an option and so need a dividend yield to plug into Black-Scholes.
We can compute an implied dividend yield for a stock using:
$$F=S_0 e^{(r-d)T}$$
and by isolating for $...
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Why would a 9% dividend payment halve the stock price? [closed]
I am trying to understand why a stock experienced a very drastic drop in price. The only event linked to the drop seems to be payment of an unusually big dividend; however its effect on the price ...
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Modelling long run relationship between dividend and earnings
I am working on a paper where I have to model the long run relationship between earnings and dividends. I have downloaded the raw data from shillers website. I have converted the series to log(...
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How does income tax affect the Ex-dividend behavior of a stock?
If there are no taxes and no volatility, I would expect the the move in a stock on the Ex-dividend date to be equal to the gross value of the dividend.
However, if I am taxed, I find the problem gets ...
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