A Simple Pricing Model for Plain-Vanilla Dividend Futures Options
6 Pages Posted: 15 Jun 2019
Date Written: April 29, 2019
This technical note provides a detailed description of a simple but effective modeling solution to mark and risk manage plain-vanilla options on dividend futures. We focus on equity indices, as dividend products for single stocks are less liquid and observable and we derive a simple pricing formula for dividend futures options based on a dynamic replication argument. The simplicity of the derived pricing methodology makes it particularly relevant for marking-making purpose.
Keywords: Dividend futures options, Black-Scholes, pricing, equity derivatives, Eurostoxx
JEL Classification: G13
Suggested Citation: Suggested Citation