# How to calculate dividend yield - option pricing

Hey how do you calculate the dividend rate if you want to price your stock options eg apple? Just take the dividends paid last year and divide by today's share price? This page reports 0.85% (https://finance.yahoo.com/quote/AAPL?p=AAPL)

• the best way is to compute the forward using discrete dividends and discounting then invert the forward formula with dividend yield: F=S*exp((r-q)*T) – Valometrics.com Jul 31 at 14:33
• Dividends are a problem. Calculating (or estimating) forward dividend yields for equity option prices is generally NOT something market participants will usually agree on, so equity options almost always have to be quoted in terms of price. This is in contrast to, say, FX options where forward curves are agreed upon and options can then quoted in terms of vol instead. – StackG Aug 1 at 0:42

Note that yahoo is posting the forward dividend yield. Other yields, trailing (that you seem to describe) and indicated, are described (Investopedia) here and (Wikipedia) here. See also this, this, and related links on Stack Exchange.

In general, for (estimated) discrete dividends $$(D_i)_{1\leq i\leq n}$$ at future times $$(0<)t_1<\ldots, the $$0$$-time forward stock price for $$T$$-maturity is

$$F_{0,T} = \mathrm{e}^{rT}S_0 - \sum_{i=1}^n \mathrm{e}^{r(T-t_i)} D_i$$

With continuous dividend yield over the same period $$[0,T]$$, the forward price is:

$$F_{0,T} = \mathrm{e}^{(r-q)T}S_0$$

By equating them, we get:

$$q = -T^{-1} \ln \left(1 - S_0^{-1} \left( \sum_{i=1}^n\mathrm{e}^{-rt_i} D_i\right) \right)$$