An Analysis of the Equity Local Volatility Model with Affine Dividends

8 Pages Posted: 7 Dec 2018

See all articles by Ghislain Vong

Ghislain Vong

Deutsche Bank AG - Global Equity Derivatives

Date Written: September 1, 2011

Abstract

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

Vong, Ghislain, An Analysis of the Equity Local Volatility Model with Affine Dividends (September 1, 2011). Available at SSRN: https://ssrn.com/abstract=3282319 or http://dx.doi.org/10.2139/ssrn.3282319

Ghislain Vong (Contact Author)

Deutsche Bank AG - Global Equity Derivatives ( email )

United Kingdom

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