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I have a question regarding quanto options in the interdealer market. When a trader hedges his quanto risk in the interdealer market, he trades an ATM Synthetic Quanto Spread (the difference of 2 forwards) Let's take a "quanto" structure: SPX quanto Euro. [Call(S)_Dom - Put(S)_Dom] -...

Thanks a lot for answering. Yes, standard broker-market structure. A term sheet would be very useful...

I have a question regarding quanto options in the interdealer market. When a trader hedges his quanto risk in the interdealer market, he trades an ATM Synthetic Quanto Spread (the difference of 2 forwards) Let's take a "quanto" structure: SPX quanto Euro. [Call(S)_Dom - Put(S)_Dom] -...

Exactly - synthetic forwards.

There are certain tech stocks in US which don't pay dividends hence the financing cost can be directly observed from synthetic forward prices. I've noticed that the implied repo (the spread over 3M Libor curve in my case) is fairly constant over the 2Y period and averages around 25 bps. Is this...

Does anyone have any other ideas?

Thanks a lot for your replies. I'm just wondering about two things: How do you adjust forward price for dividend tax rates? If there is a listed market up until 3 years and you want to price 4y, would use still use historicall growth rates somehow or extrapolate implied dividends? Why for...

Actually my question was more single-stock oriented. For indices it's easier because there are div futures quoted with long expiries (up to 10y).

Thanks a lot for your insight! Besides, from what i've observed there is a significant risk premium in implied dividends far out (implied divs are sold at discount). Actually the dividend term structure is declining. Therefore probably it makes more sense to extrapolate implied dividend rather...

Let's assume I was able to imply dividends from liquid options for the next 3 years, but I want to price an option expiring in the 4rd year from now. How would practitioners normally extrapolate implied dividends? Thanks

How reasonable it is to assume that the forwards (implied through call-put parity from European options) on easy-to-borrow European stocks will "grow" at Euribor/Eonia rate? In other words, is it reasonable to assume that we can finance the stock hedge at Euribor/Eonia (given we leave the stock...

It's around 20 bps on average (SX5E vs constituents' average)

It's a convenience yield due to the fact that you can buy a hedge and then lend it until the expiry in the repo market

Dividend forecasting services forecast gross dividend amounts. However, forward price drops by the net amount. Given the complexity of dividend tax regulations, it's not enough to apply a default withholding tax rate in the quotation country. It looks like a dividend tax rate is a market...

I've observed that the repo rate implied from synthetic forwards on Euro Stoxx 50 is significantly higher than the repo rate implied from synthetic forwards on individual stocks that are constituents of the index. This is especially pronounced for the short-end tenors (<0.5y) Why this occurs...