Estimating ETF Forward Prices and Implied Dividend Yields from Options
Summary
The document discusses how to estimate an equity ETF’s forward price and implied dividend yield when building an implied volatility surface. The questioner derives a synthetic forward from call and put prices near the spot price, then combines it with spot and a discount curve to infer the yield. This approach is sensitive to wide option bid-ask spreads, especially for less liquid ETFs and longer expiries, and depends on the chosen discount rate.
The exchange raises the distinction between a yield forecast and a market-implied quantity, including whether vendor-provided yield fields reflect market pricing. However, it supplies no substantive answer resolving the sourcing or decomposition questions. It therefore identifies practical inputs and sources of noise but does not establish a preferred estimation method, compare alternatives, or provide evidence that one data source is more reliable. Any inferred yield remains dependent on option liquidity, quote handling, and the rate assumptions used.
Key ideas
- Put-call prices around spot can be used to infer a synthetic ETF forward.
- Combining the inferred forward with spot and a discount curve yields an implied dividend component.
- Wide option bid-ask spreads can make synthetic forwards noisy, particularly for illiquid or longer-dated options.
- Vendor yield fields may not represent market-implied dividend expectations, and the discussion does not resolve that question.
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Full text
# How do I calculate the implied dividend yield and/or the forward rate for an equity ETF? # How do I calculate the implied dividend yield and/or the forward rate for an equity ETF? I am interested in building an implied volatility surface for a given ETF given a set of option prices for several combinations of (call/put,strike,expiry). I am interested in different ways to arrive at the ETF forward price (assume value date = expiry+2) The forward price is a function of spot, discount rate, and implied dividend yield. I can easily access spot, and have my own USD discount curve based on SOFR. I am struggling with the dividend yield component. Current Approach: I back out the synthetic forward rate using the prices of the call and put struck at the closest strike to current spot. From that rate I adjust for spot and my own discount rate for that value date, and that leaves me with the implied dividend yield. Drawbacks of current approach: The more illiquid the ETF, and/or the longer dated the expiry, the wider the streaming bid/offer for the options. This leads to much more noise in calculating the synthetic forward rate as I am assuming there is no skew in the bid/offer when taking the averages. Secondly, this approach also seems a bit hacky as I am not explicitly sourcing a dividend yield from some other asset, rather I am using my estimate of risk-free rate (which could be well off from market implied rate) and also assuming no other drivers of the synthetic forward price. Available Data Sources: I am using IBKR to stream the prices, and have access to BBG. BBG provided an "Indicative Yield" data field as well as a BDVD forecast, but I am not sure if this is market implied. It also does not support some relatively liquid and popular ETFs. Summary: How are you arriving at the forward price of an ETF for pricing purposes? How are you splitting the option implied synthetic forward into its subcomponents? Edit: As suggested by AKDemy in the comments, his answer to another question is helpful: Is it possible to have only one volatility surface for american options (that fits both calls and puts)?
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