The Pricing of Dividend Futures in the European Market: A First Empirical Analysis
Journal of Derivatives & Hedge Funds, Vol. 16, pp. 136-143, 2010
Posted: 19 Mar 2009 Last revised: 22 Jan 2011
Date Written: July 13, 2009
This paper is the first to study empirically the pricing of the Euro Stoxx 50 dividend futures, introduced at the Eurex (European Exchange) in mid-2008. These instruments are an easy means of obtaining exposure to the future dividends of the index constituents for hedging and speculation purposes. Trading figures so far show a viable interest of market participants in this innovation. Based on straightforward and model-free replication arguments, this study compares prices of the dividend futures to those of hedging portfolios built on exchange-traded index options. The analysis shows substantial pricing imbalances and hence violations of arbitrage relations between both derivatives markets for a set of contract maturities. This phenomenon can not be fully explained by transactions costs and other potential trading constraints.
Keywords: Dividends, derivatives, futures, swaps, European market
JEL Classification: G13, G24
Suggested Citation: Suggested Citation