Is dividend taxation priced in derivatives?
No. Black Scholes includes a number of variables to calculate the value of the derivative but taxation isn't one of them. Whether you are trading options or futures, the dividend itelf may be part of the equation, but not the tax on said dividend. "While derivative pricing models are better modeling reality as academia invests more into the subject, none sufficiently do. If, for example, one assumes that stock returns are lognormal for the purposes of pricing options like Black Scholes does, the only true dependent variable becomes log-standard deviation otherwise known as ""volatility"", producing the infamous ""volatility smile"" which disappears in the cases of models with more factors accounting for other mathematical moments such as mean, skew, and kurtosis, etc.  Still, these more advanced models are flawed, and suffer the same extreme time mispricing as Black Scholes.  In other words, one can model anything however one wants, but the worse the model, the stranger the results since volatility for a given expiration should be constant across all strikes and is with better models. In the case of pricing dividends, these can be adjusted for the many complexities of taxation, but the model becomes ever more complex and extremely computationally expensive for each eventuality.  Furthermore, with more complexity in any model, the likelihood of discovering a closed form in the short run is less. For equities in a low interest rate, not high dividend yield, not low volatility, low dividend tax environment, the standard swap pricing models will not provide results much different from one where a single low tax rate on dividends is assumed. If one is pricing a swap on equity outside of the bounds above, the dividend tax rate could have more of an effect, but for computational efficiency, applying a single assumed dividend tax rate would be optimal with D*(1-x), instead of D in a formula, where D is the dividend paid and x is the tax rate. In short, a closed form model is only as good as its assumptions, so if anomalies appear between the actual prices of swaps in the market and a swap model then that model is less correct than the one with smaller anomalies of the same type.  In other words, if pricing equity swaps without a dividend tax rate factored more closely matches the actual prices than pricing with dividend taxes factored then it could be assumed that pricing without a dividend tax factored is superior.  This all depends upon the data, and there doesn't seem to be much in academia to assist with a conclusion. If equity swaps do truly provide a tax advantage and both parties to a swap transaction are aware of this fact then it seems unlikely swap sellers wouldn't demand some of the tax advantage back in the form of a higher price.  A model is no defense since volatility curves persist despite what Black Scholes says they should be."
"If you are a resident of New Zealand for tax purposes, you will be taxed in New Zealand on all of your ""worldwide income"". This is income derived from New Zealand as well as income derived from all other countries Source: http://www.ird.govt.nz/international/nzwithos/income/overseas-income-index.html Another link that will be of use is this: https://www.ato.gov.au/individuals/international-tax-for-individuals/work-out-your-tax-residency/ This is Australia's rules on if you qualify as a resident for tax purposes.  I am not an accountant or a lawyer but my reading of this is you actually have to reside in Australia to be considered a resident - whether or not you have a bank account there doesn't appear to play into it. Additionally, Australia and NZ have a ""double taxation agreement"", explained here: http://www.ird.govt.nz/yoursituation-nonres/double-tax/ So this should prevent you from being taxed in both places." Futures contracts are a member of a larger class of financial assets called derivatives. Derivatives are called such because their payoffs depend on the price of other assets (financial or real). Other kinds of derivatives are call options, put options. Fixed income assets that mimic the behavior of derivatives are callable bonds, puttable bonds etc.  A futures contract is a contract that specifies the following: Just like with any other contract, there are two parties involved. One party commits to delivering the underlying asset to the other party on expiration date in exchange for the futures price. The other party commits to paying the futures price in exchange for the asset. There is no price that any of the two parties pay upfront to engage in the contract. The language used is so that the agent committing to receiving the delivery of the underlying asset is said to have bought the contract. The agent that commits to make the delivery is said to have sold the contract.  So answer your question, buying on June 1 a futures contract at the futures price of $100, with a maturity date on August 1 means you commit to paying $100 for the underlying asset on August 1. You don't have to pay anything upfront. Futures price is simply what the contract prescribes the underlying asset will exchange hands for. A derivative in finance is simply any asset whose value is based on the value of another asset or based on the value of a group of assets. A derivative contract is a type of contract (usually a 'standardized contract') with specific payout instruction based on the price changes of a different asset. The basic idea is that it becomes easier to make a claim to an asset or property (and profit from this claim), without needing to physically transfer it (or even the title to said asset), and use much less capital to do so (reduce risk). They become problematic when multiple people may have claims to the real asset, or when the value of the derivatives changes very quickly or are hard to calculate. There are also liquidity problems the further you get from the real asset. This is not a problem for all kinds of derivatives contracts. And you must recognize that derivatives are used colloquially in a way that has nothing to do with reality to cause fear in people/investors that are not financially savvy. Many derivatives also have dubious or no economic purposes such that regulators don't allow them to be traded since they can't see how it is different from gambling. This is seen in financial markets that are less liberalized or cultures with puritanical backgrounds. Typically the trick is to convince regulators that the derivative or financial product helps with reducing risk and hedging and it will get approved. I've mentioned some terminology, but this depends specifically on what kind of derivatives contract you become interested in. Swaps, Credit Default Swaps, Futures, Options, Options on Futures, Leveraged Exchange Traded Funds, Inverse Leveraged Exchange Traded Funds, warrants, and more all have their own terminology. How to trade them in a simulation? It all depends on which financial product you really become interested in. If a market is efficient then risk/reward should be linear.  In simple markets like stocks and bonds, everyone thinks the same way and the risk/reward calculation is simple, so everyone can have an accurate idea of the risk/reward ratio, unless the company has serious undisclosed problems. But in other markets like derivatives and mortgage bonds, few people understand what they're buying so the risks remain hidden. Someone might think a company will do well, so they buy an derivative on that company. But no one understands risk/reward calculations on derivatives, so the risk/reward on the derivative could be way off the price on the derivative. When dividend is announced the stock and option price may react to that news, but the actual payout of the dividend on the ex-dividend date is what you probably are referring to. The dividend payout affects the stock price on the ex-dividend date as the stock price will drop by the amount of paid out dividend (not taking into account other factors). This in turn drives the prices of all options.  The amount of change in the option price for this event is not only dependent the dividend payout, but also on how far these are in our out of the money and what there time to expiration is. The price of a call option that is far out of the money would react less than the price of a put that would be far in the money. Therefore I would argue that these two will not necessarily offset each other. Typically, the discount is taxable at sale time But what about taxes?  When the company   buys the shares for you, you do not   owe any taxes. You are exercising your   rights under the ESPP. You have bought   some stock. So far so good. When you sell the stock, the discount   that you received when you bought the   stock is generally considered   additional compensation to you, so you   have to pay taxes on it as regular   income. Source: Turbotax.   Second source. Your pretax rate of return would be: 17% (100/85) In your scenario where the stock price is fixed at $100. Your tax rate would be your marginal rate.   If the stock stayed at 100, you would still be taxed as income on $15/share (the discount) and would receive no benefit for holding the stock one year. Assuming you are in the 25% tax bracket, your after tax rate of return would be 13% ((15*.75)+85)/85) The answer provide by @mbhunter is correct, however there are contexts, shorting in spot market and carrying the position over settlement usually does not entail payment of dividend to the broker, one of the reason being post ex-date the price of the share downward adjusts to the extent of the dividend, so practically if you have shorted at 100 and post ex-date (assuming a dividend of 2 and no movement of the stock price), the price would slide to 98, the party who longed the stock @ 100 now is sitting on a price of 98 and received a dividend of 2 which equates to 100. The above is also contextual to the law of the country governing the exchange and the security exchange board regulations. "The Dividend Discount Model is based on the concept that the present value of a stock is the sum of all future dividends, discounted back to the present. Since you said: dividends are expected to grow at a constant rate in perpetuity ... the Gordon Growth Model is a simple variant of the DDM, tailored for a firm in ""steady state"" mode, with dividends growing at a rate that can be sustained forever. Consider McCormick (MKC), who's last dividend was 31 cents, or $1.24 annualized. The dividend has been growing just a little over 7% annually. Let's use a discount, or hurdle rate of 10%. MKC closed today at $50.32, for what it's worth. The model is extremely sensitive to inputs. As g approaches r, the stock price rises to infinity. If g > r, stock goes negative. Be conservative with 'g' -- it must be sustainable forever.  The next step up in complexity is the two-stage DDM, where the company is expected to grow at a higher, unsustainable rate in the early years (stage 1), and then settling down to the terminal rate for stage 2. Stage 1 is the present value of dividends during the high growth period. Stage 2 is the Gordon Model, starting at the end of stage 1, and discounting back to the present. Consider Abbott Labs (ABT). The current annual dividend is $1.92, the current dividend growth rate is 12%, and let's say that continues for ten years (n), after which point the growth rate is 5% in perpetuity. Again, the discount rate is 10%. Stage 1 is calculated as follows: Stage 2 is GGM, using not today's dividend, but the 11th year's dividend, since stage 1 covered the first ten years. 'gn' is the terminal growth, 5% in our case. then... The value of the stock today is 21.22 + 51.50 = 72.72 ABT closed today at $56.72, for what it's worth."