In the Stalla examples for creating synthetic stock positions with index futures, to adjust for dividends they divide by (1+dividend yield)^T Why are we not using continuous compounding ie e^(div yield)*T ? Are they just simplifying or is there a reason to not factor in compounding?
If they give you yearly compounded rates, you cannot use exponential growth. For instance, if you invest $100 today at a 5% annual rate, how much money do you have after 1 year? 1.05^1 = 1.05, but exp(0.05) = 1.05127.
Why would you assume an index dividend yield is anything but compounding? If it is why arent you discounting by continuous yield?
Don’t ask me. That’s just what the question is using.
Quants quote (and work with) cc rates, but nobody else in finance does. Start with the customer – does your mom better understand semiannual coupon rates on her FI instruments, or cc rates?
Since when is the CFA curriculum geared toward what your mother understands?