Synthetic position - dividend yield

[June06]

For Synthetic position calculations, the dividend yield is priced into the contract price or we ignore it?

[Enemyofmyenemy]

I’m far from an expert, but I only found they factored in the dividend yield when you’re calculating the synthetic number of stock you are “holding”

Either in a present value form (in which case, you divide by the dividend yield) or in future value form (where you multiply by the div. yield).

Namely, present value number of stock held synthetically = (# of contracts * multiplier)/ (1 + div yeild)^t

I think…

[cohiba42]

#contracts_UNrounded = (T_held)(1 + R_F)^t/(P_f)(multiplier) → T_equitized = [(#contracts_rounded)(P_f)(multiplier)]/(1 + R_F)^t

effective # of shares of stock purchased = (#contracts_rounded)(multiplier)/(1 + div. yield)^t

[JJ1337]

@June06

For Synthetic position calculations, the dividend yield is priced into the contract price or we ignore it?

start reading p. 235 third last sentence + end reading p. 236, fn. 27; btw: nice possible pm question

[June06]

Thanks for the input.

Seems only calcualting the effective number of shares converted to cash needs to use dividend yield.

[JJ1337]

Jep.