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Generalized Dividends


The cash throw-off from a non-equity investment that, nonetheless, is used in an equity option model. An investor who buys equity will receive a cash throw-off from this investment in the form of dividends. However, if the investor buys foreign currency, he would receive generalized dividends embodied in the foreign currency interest. That is, the interest earned on a foreign currency is assumed to be equivalent to a dividend in the equity model. In the case of commodities, storage costs are assumed to be proportional to a commodity’s value, and therefore they can be treated, theoretically, as a negative dividend.

Generalization of dividends, in this sense, is used for the purpose of analogy.



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Derivatives have increasingly become very important tools in finance over the last three decades. Many different types of derivatives are now traded actively on ...
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