Dividend yield curve

[Ghorpadkar, Suhas]

Hello,

 

I am trying to price an option where the underlying is S&P 500 index. I get a feed of volatility surface from a reputable vendor and in addition to strikes and Black vols, they also provide a “DividendYieldPercent” for each of the maturity dates in the feed. I have played with building BlackVarianceSurface in Quantlib and NPV of the option is somewhat off from the vendor’s own calculation. I suspect that the difference is due to me not using the future “estimated” dividends that they provide. Question is I am not sure how to build this future dividend curve in Quantlib. I see examples of using ex-dividend date/yield. I am assuming I need to build some kind of dividend term structure and pass it off to my BS process.

Any suggestions are highly appreciated.

 

Thanks.

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[Luigi Ballabio]

Hi,

    you can use the dividends and the corresponding dates to build an instance of the InterpolatedZeroCurve class template, as in:

std::vector<Rate> dividendYields;

std::vector<Date> maturities;

... (fill the vectors)...

boost::shared_ptr<YieldTermStructure> dividendCurve(new InterpolatedZeroCurve<Linear>(maturities, dividendYields, dayCounter));

When filling the vectors, note that the first date should be today's date (the corresponding dividend can be a copy of the first actual dividend).

The day counter should be the one used to calculate the dividend yields, hoping that your vendor provides the information.

You can also change the interpolation from Linear to another one, if you need.

Once you have the curve above, you can pass it to the BS process.

Hope this helps,

    Luigi

 

On Fri, Apr 15, 2016 at 10:35 AM Ghorpadkar, Suhas <[hidden email]> wrote:

Hello,

 

I am trying to price an option where the underlying is S&P 500 index. I get a feed of volatility surface from a reputable vendor and in addition to strikes and Black vols, they also provide a “DividendYieldPercent” for each of the maturity dates in the feed. I have played with building BlackVarianceSurface in Quantlib and NPV of the option is somewhat off from the vendor’s own calculation. I suspect that the difference is due to me not using the future “estimated” dividends that they provide. Question is I am not sure how to build this future dividend curve in Quantlib. I see examples of using ex-dividend date/yield. I am assuming I need to build some kind of dividend term structure and pass it off to my BS process.

Any suggestions are highly appreciated.

 

Thanks.

............................................................................

For further important information about AllianceBernstein please click here
http://www.abglobal.com/disclaimer/email/disclaimer.html

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