Estimating discrete dividends by no-arbitrage

Abstract

We develop and showcase a simple no-arbitrage methodology for the valuation of discrete dividend payments, based exclusively on market prices of options via the put-call parity. Our approach integrates all available option market data and simultaneously calibrates the market-implied discount curve, thus ensuring consistency across spot and derivative markets. We illustrate our method using stocks of European blue-chip companies

Improved Dividend Estimation from Intraday Quotes

“…In this paper, we generalize the work of Desmettre et al [ 1 ]. The work of Desmettre et al [ 1 ] and our paper can be seen as a parallel to recent work in interest rate estimation by Azzone and Baviera [ 24 ] and Blomvall et al [ 25 ]. The estimation methodologies are similar for interest rates and dividends, but the latter contains additional nuances that must be considered.…”

“…This paper presents a method for extracting dividend information from the equity derivatives market using exchange-traded European-typed call and put options. The central methodology in this paper is an extension of the work of Desmettre et al [ 1 ], that is, to formulate a linear regression with a well-known put–call parity. Moreover, we present a novel option position (the sloped asset position), from which it is possible to compute a dividend estimate without specifying an interest rate.…”

“…Our focus, i.e., on estimation methodology, is not common, but another similar exception is the linear regression (ordinary least squares) methodology presented by Desmettre et al [ 1 ]. In this paper, we generalize the work of Desmettre et al [ 1 ].…”

“…Our focus, i.e., on estimation methodology, is not common, but another similar exception is the linear regression (ordinary least squares) methodology presented by Desmettre et al [ 1 ]. In this paper, we generalize the work of Desmettre et al [ 1 ]. The work of Desmettre et al [ 1 ] and our paper can be seen as a parallel to recent work in interest rate estimation by Azzone and Baviera [ 24 ] and Blomvall et al [ 25 ].…”

“…The estimation methodologies are similar for interest rates and dividends, but the latter contains additional nuances that must be considered. Papers that have estimated dividend quantities from data, such as Golez [ 22 ], Bilson et al [ 23 ], and Desmettre et al [ 1 ], have all based their estimates on data from a single time. We expand the data —in the same way as Blomvall et al [ 25 ] does —to use intraday data and find that it provides more stable estimates, i.e., less sensitive to market noise.…”