A term structure model for dividends and interest rates

Abstract

Over the last decade, dividends have become a standalone asset class instead of a mere side product of an equity investment. We introduce a framework based on polynomial jump‐diffusions to jointly price the term structures of dividends and interest rates. Prices for dividend futures, bonds, and the dividend paying stock are given in closed form. We present an efficient moment based approximation method for option pricing. In a calibration exercise we show that a parsimonious model specification has a good fit with Euribor interest rate swaps and swaptions, Euro Stoxx 50 Index dividend futures and dividend options, and Euro Stoxx 50 Index options.

Improved Dividend Estimation from Intraday Quotes

“…Dividends are also central in the derivative pricing literature. Dividends have recently started to be seen as an independent asset class according to Filipović and Willems [ 9 ], who also provide an overview of this market. This asset class has some interesting properties, but it is not used in this paper.…”

Sustainable Construction and Financing—Asset-Backed Securitization of Expressway’s Usufruct with Redeemable Rights

“…Regarding the uncertain impact of various transaction structures on the term structure and the risks of fixed income products, entropy indicators have become an important tool in the field of asset pricing gradually. Filipović and Willems [3] identified the density function through the entropy method and priced the options of dividend stocks and the interest rate-dividend hybrid derivatives, which contributed to the analysis of yield with uncertain distribution. Sheraz et al [4] believed that in many cases, no arbitrage risk measurement was difficult to be realized through using numerical method, and the minimum entropy method provided a new idea for the determination of risk neutral measurement.…”