The dividend divide

Cover story

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Whether a company pays a dividend is one crucial factor in the performance of derivatives-based structured investment products linked to the stock. But there’s little consensus on how to model this so-called dividend risk. Dividends are typically labelled a ‘second-tier’ parameter (a causally weaker independent variable) in classical options theory. But most leading structured products houses now believe dividends modelling often outweighs correlation and volatility modelling as the most critica

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