[R-SIG-Finance] Dividends

[Leigh E. Lommen]

Raghuraman,

Although, in theory it should change the underlying the same as the option, evidence that the calls change by the after-tax effect.  In my experience it is always best to go by the actual market traded instruments, so I would use the dividends.  If you see it differently, please explain.

Leigh


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Subject: R-SIG-Finance Digest, Vol 75, Issue 14
 
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Today's Topics:

   1. the dividend effect? (Raghuraman Ramachandran)


----------------------------------------------------------------------

Message: 1
Date: Tue, 17 Aug 2010 08:43:24 +0100
From: Raghuraman Ramachandran <optionsraghu at gmail.com>
To: r-sig-finance at stat.math.ethz.ch
Subject: [R-SIG-Finance] the dividend effect?
Message-ID:
	<AANLkTinqO5TKaEDVTBLad0g8yBOBtyiYjW5xOU27ojcG at mail.gmail.com>
Content-Type: text/plain

Hi

This is not an R-related question so pls excuse. If I am backtesting a
*completely
hedged* options portfolio then do I need to take dividends into
consideration? My understanding is that since dividend affects both the
calls and the underlier in a similar fashion then taking dividends also into
consideration for backtesting will skew the effects on the returns. Please
correct me if I am wrong?

Many thanks
Raghu

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