Eric Ervin - Risk Reducers & Return Enhancers (S1E3)
Flirting with Models
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The Limits of Dividend Swaps
Corey: I often try to start with the limits for dividends swaps. The two obvious extremes are an infinitely length perpetual swap and a bullet one year swap. We can use these two extremes to develop a first order approximation of how we would expect intermediate length dividend swaps to behave, he says. Corey: It's not a free lunch because there's risk dividends could fall and I might earn zero. But that's how dividends get priced in the dividend market Because we're providing a service to people who don't think dividends are going to rise or to people who maybe no dividends are going on their books if we do have a big sell off.
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