Abstract
The focus of this chapter is traded dividend risk, which is defined as the risk to an equity derivatives position from a change in dividends paid by a corporate entity.
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Notes
- 1.
Stock dividends are included at their cash equivalent value but special dividends and share buybacks are excluded.
- 2.
www.ftse.com. An example of a restricted shareholding could be when a quoted company is partially state-owned.
- 3.
- 4.
See Sect. 12.7.3.2.
- 5.
An example of a similar type of calculation is shown for variance swaps in Sect. 14.6.1.3.
- 6.
In Sect. 10.2 it was shown that the spread to LIBOR on the floating leg of an equity swap should trade in line with the securities lending market.
- 7.
Sometimes referred to as ‘pull to par’.
- 8.
This strategy is also very popular in the commodity markets. See Schofield (2008).
- 9.
It is not exact due to rounding of the notional amount.
- 10.
The DV01 is the ‘dollar value of a basis point’. It measures the change in the value of the swap for a 1 basis point change in swap rates. See Schofield and Bowler (2011) for more details.
- 11.
Figure obtained from Barclays Live.
- 12.
See Schofield and Bowler (2011) for more on Credit Default Swaps.
Bibliography
Barclays Capital (2010) Dividend swaps and futures Barclays Bank research
Schofield, N.C. (2008) Commodity derivatives Wiley Finance Series
Schofield, N.C., & Bowler, T. (2011) Trading, the fixed income, inflation and credit markets: a relative value guide Wiley Finance Series
Risk Magazine (2016a) Dealers fear death of dividend risk premia strategy
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Schofield, N.C. (2017). Traded Dividends. In: Equity Derivatives. Palgrave Macmillan, London. https://doi.org/10.1057/978-0-230-39107-9_13
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DOI: https://doi.org/10.1057/978-0-230-39107-9_13
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