Speaker: Damir Filipović, Ecole Polytechnique Fédérale de Lausanne
Time & Location: Tuesday, July 31, 2018
RM 1011 Evans Hall, UC Berkeley
“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 futures options, and Euro Stoxx 50 index options.
Slides for the seminar can be found here.