Hi, all,A question concerning single stock futures. It seems to me the main problem in pricing them is the forecasting of dividend. Depending on each company's dividend paying frequency and ex-dividend, one can forecast their subsequent ex-dividend dates, but that is not going to be very precise. One ended up having to tweek the dividend amount in further out months. I am wondering if in practice that is what everyone does, i.e. a high maintenance work in terms of tweeking dividends to line up with the market.

I'm afraid it is a lot of monkey work, but also necessary as you may end up losing a lot of money because of dividends. Typically, in absence of a company announcement, you want to chat with a fundamental analyst to know how much a company is likely to pay in a year. Than work out the dividend per share (in my experience analysts are not particularly concerned about the right number of shares to use) and check on which date the company is likely to pay (That's not too difficult as each exchange has its own rules for the ex dates, and companies are likely to pay in the same months). You may have heavy mismatches when your date is wrong and you end up attributing the dividend to the wrong futures contract.Then if you're far away from the market implied dividends you may want to have a look at the ibes consensus dividends to see if your analyst is far away from his peers. Bloomberg has a very nice function that let you see estimates analyst by analyst. (not in excel though...) If you still can't explain the difference, start looking at the news, and see if the company already announced something relevant, there's a profit warning, etc. If you're sure that your information is right and the market is far away, you may take a view on the divs itself trading the basis. All of this does not take into account tax issues.I am quite scheptical about using market implied dividends too faithfully, expecially when it comes to single stock futures. I think is much better to have a clear idea of what your dividend risk is, as you may not be willing to take it on your book. Single stock futures are a very neat way to trade your dividend views and not by chance the heaviest volumes on Liffe USF usually seen when there are changes in dividend policy. My "last resort check" is to look at the single stock options and find the dividend that minimises the distance between call and put implied volatility for the close to ATM strikes, and same maturity as the futures. No easy way like using put-call parity is available as most of the single stock options are american stlye. A bit more like art, rather than science, but at least you know that your skew will have a rather distinctive funny shape if you have the wrong forward!Hope this helps,G

thanks Gamanti,it is very helpful.

There is a pretty good article about dividend risk in the August Risk magazine (I only have a hardcopy, but the article is on www.risk.net for subscribers), albeit relating specifically to structured equity products rather than forwards. It suggests that, for structured equity products, dividend modelling is possibly more important than vol or correlation model.It seems that the preferred approach is to mark short term dividends individually - a lot of work, as Gamanti says - and mark longer term dividends as proportional to stock price.Whether you use constant divs or some kind of proportional basis is, of course, important when it comes to Monte Carlo valued trades.

i've been trading these products for a while now, and assure you that the only two relevant factors are the long/short rates and dividends. i've seen a bunch of people attempt to pick off bad dividend views, whereas the transaction costs associated with the futures eat up any real distinguishable difference in each contra's financing or short rates. the activity in the high yield div names on the Liffe, as gamanti mentioned, are more related to the dividend swaps than to dividend policies in my experience.

I was told that single stock future market is not very liquid. Is it the case?