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

Abstract

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

Wilkens, Sascha and Wimschulte, Jens, The Pricing of Dividend Futures in the European Market: A First Empirical Analysis (July 13, 2009). Journal of Derivatives & Hedge Funds, Vol. 16, pp. 136-143, 2010, Available at SSRN: https://ssrn.com/abstract=1350788

Sascha Wilkens (Contact Author)

Independent

No Address Available

Jens Wimschulte

Independent ( email )

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