An Analysis of the Equity Local Volatility Model with Affine Dividends
8 Pages Posted: 7 Dec 2018
Date Written: September 1, 2011
This note discusses the impact of dividend modelling on the pricing of equity exotic derivatives under a local volatility model. It explains how the level of the implied local variance is adjusted as the contribution of proportional dividends is increased and characterises the impact of the mixture specification on the forward transition probability of the equity spot process.
Keywords: derivatives, equity, local, volatility, dividend, modeling, stochastic
JEL Classification: C02, G13
Suggested Citation: Suggested Citation