Inferring an Index Dividend Yield Without Index Forwards

Summary

The document frames a derivatives-pricing problem: Black–Scholes option valuation requires a dividend yield, and a stock’s implied yield can be inferred from its spot price, forward price, interest rate, and time to maturity. It then asks how to obtain an equivalent yield for an index when no forward quote is available for that index.

The text introduces the stock forward relationship as the starting point but does not develop an index-level estimation method or provide data, calculations, or a proposed solution. It is therefore useful as a statement of the problem and its key input dependency, rather than as a complete pricing procedure. Any practical index estimate would need supporting information or assumptions that are not specified here.

Key ideas

• Black–Scholes option pricing requires an assumed dividend yield.
• A stock’s implied dividend yield can be isolated from its forward pricing relationship.
• The document asks how to estimate an index yield when index forwards are unavailable.
• No index yield estimation method or worked example is provided.

Tags

# Dividend yield for an index


# Dividend yield for an index












Let's say we want to price an option and so need a dividend yield to plug into Black-Scholes.

We can compute an implied dividend yield for a stock using:

$$F=S_0 e^{(r-d)T}$$

and by isolating for $d$. We can then use this implied dividend in pricing options.

But how do we find the implied dividend yield for an index? E.g. what if we want to price an option on an index, and there are no forwards for that index?

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.