Cash dividends and futures prices on discontinuous filtrations

M.H. Vellekoop, J.W. Nieuwenhuis

    Research output: Book/ReportReportProfessional

    43 Downloads (Pure)

    Abstract

    We derive a general formula for the futures price process without the restriction that the assets used in the future margin account are continuous and of finite variation. To do so, we model tradeable securities with dividends which are not necessarily cash dividends at fixed times or continuously paid dividends. A future contract can then be modelled as an asset which pays dividends but has zero value in itself. We show that the futures price is not necssarily a martingale under the equivalent martingale measure, but that it remains a martingale under a new measure which is closely connected to multiplicative Doob-Meyer decompositions. Our definition of self-financing replication is different from some earlier ones, even for assets that do not pay dividends, and we argue that for discontinuous asset price processes it could be more natural than the usual formulation.
    Original languageUndefined
    Place of PublicationEnschede
    PublisherUniversity of Twente, Department of Applied Mathematics
    Number of pages9
    Publication statusPublished - May 2007

    Publication series

    Name
    PublisherDepartment of Applied Mathematics, University of Twente
    No.06472/1838
    ISSN (Print)1874-4850
    ISSN (Electronic)1874-4850

    Keywords

    • EWI-9943
    • IR-67136
    • Futures
    • METIS-241641
    • Cash dividends
    • Financial modeling

    Cite this