Hello
I am experimenting with QuantLib to price a Barrier Warrant on an Index. I have the following question :-
I have a set of dividend forecasts for the index (actually from the constituent stocks, weighted appropriately). How should these be represented when using the 'BarrierOption' class? I started out deriving a dividend yield, then passing a 'FlatForward' TermStructure as per the barrier warrant unit test. However, I'm told this is not ideal since it introduces an assumption that dividend yield is constant, while the market price changes over time. I think I need a term structure that reflects the dividend forecasts which have been given. Does someone know if there is an appropriate QuantLib TermStructure to handle this, and how I would set up that structure?
Or should I set a dividend yield of zero, then subtract the present value of the dividends from the spot price of the underlying index? Note I have been advised to use the Front future as the spot price of the Index. Would this approach produce a reliable theoretical price?
A pointer in the right direction would be greatly appreciated.
- Jason
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