DAX fair value

twelvespot · Jan 2, 2005

Happy New Year

Does anyone have the DAX fair value equation? Or could anyone point me to a website that has this information. I have been looking everywhere.

It would be helpful to know what the futures premium is for the DAX March 05 contract. If I had this info I would know when the futures are trading cheap or expensive.

Thanks

Robertral · Jan 3, 2005

twelvespot said:
Happy New Year

Does anyone have the DAX fair value equation? Or could anyone point me to a website that has this information. I have been looking everywhere.

It would be helpful to know what the futures premium is for the DAX March 05 contract. If I had this info I would know when the futures are trading cheap or expensive.

Thanks

this morning the FV is around 19

The FV can be calculated from put-call parity (using options on the DAX)

Or calculate the futures price urself F=S*exp[(r-q)*tau]

Therefore FV = F -S = S*exp[(r-q)*tau] - S = {1-exp[(r-q)*tau]}*S

twelvespot · Jan 3, 2005

Originally Posted by Robertral
this morning the FV is around 19

The FV can be calculated from put-call parity (using options on the DAX)

Or calculate the futures price urself F=S*exp[(r-q)*tau]

Therefore FV = F -S = S*exp[(r-q)*tau] - S = {1-exp[(r-q)*tau]}*S

A little embarrassed to ask, but could you please walk thru using put-call parity to determine fair value of the March contract. I found the settlement prices for the DAX options on the Eurex website.

Thanks

jmreeve · Jan 3, 2005

Therefore FV = F -S = S*exp[(r-q)*tau] - S = {1-exp[(r-q)*tau]}*S

This doesn't give a very accurate answer as it assumes dividends are paid at a continuous rate. It will not account for the sudden changes in FV as stocks go ex-div.

Robertral · Jan 4, 2005

jmreeve said:
This doesn't give a very accurate answer as it assumes dividends are paid at a continuous rate. It will not account for the sudden changes in FV as stocks go ex-div.

Ok then F = (S-D)exp(r'*tau)

How would you calc the FV???

jmreeve · Jan 4, 2005

How would you calc the FV???

Ideally, by working out the net present value of all the expected dividends of stocks in the index that will be paid until the expiry. The tau will vary as stocks in the index go ex-div on different dates.
This is not an easy calculation as you need to know the weighting in the index on the ex-div day so you can weight the dividends.

Alternatively, you can just get it from a Bloomberg terminal.

Robertral · Jan 4, 2005

jmreeve said:
Ideally, by working out the net present value of all the expected dividends of stocks in the index that will be paid until the expiry. The tau will vary as stocks in the index go ex-div on different dates.
This is not an easy calculation as you need to know the weighting in the index on the ex-div day so you can weight the dividends.

Alternatively, you can just get it from a Bloomberg terminal.

Yeah I use BB but for those guys out there that don't then??????

jmreeve · Jan 4, 2005

Yeah I use BB but for those guys out there that don't then??????

If you don't trade in the first 30 mins you can always work out the average diffence between the index
and the future mid price over the first 30-mins. This will get you pretty close to FV for the rest of the day.
I don't know of any accurate online sources of FV for the DAX but there may be one.

This link is good for US index futures
http://www.indexarb.com/

Sundog · Jan 25, 2005

Because the DAX is a "Performance Index" or "Total Return Index" (dividends already considered) you don´t need the dividens to calculate the "cost of carry".
Just use the 3 month Libor rate to calculate the Fair Value.

Current Libor rate: 2.67%

Brgds

Sundog

jmreeve · Jan 25, 2005

Yes you are right.

I wish they would standardise the way indices are calculated.

DAX fair value

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