Calibrating the Dividend Yield Model
Document ID: 2010-1727
Published on: 16th March 2010
Author: Frederic El Cherif and Steffen Sorensen
This note explains our methodology to calibrate the dividend yield model for a broad-based large mid cap equity index. In our ESG model this corresponds to the parent equity asset (E_Economy).
The calibration outlined applies to a stochastic model for dividend yields used in our ESG models. Dividend yield is modelled as a stochastic log normal mean-reverting autoregressive process. While simple the dividend yield model is tractable yet flexible enough to provide distributions consistent with historical data.
