Questions tagged [forward]

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Value Option with Forward Volatilities

That is probably a rather simple question but I got confused and would be very thankful for help. Imagine we are in 2015 and have an option that expires in either 2016, 2017, 2018, 2019, 2020 or 2021. ...
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146 views

Eurodollar future vs Eurodollar forward contracts

You are considering two contracts: a Eurodollar futures contract with six months to maturity, selling at 5%, settled on three-month LIBOR, marked to market every day; and a Eurodollar forward contract ...
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1answer
65 views

FX Forward rate agreement valuation in quantlib

I am trying to value an FRA in quantlib Python using the below code: ...
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17 views

Reliable weekend forex source that can act as credible data for Monday APAC morning forex trade

In general most of the forex market closes by 10:00 pm london time on Friday and opens back on Monday morning APAC time , somewhere around Sunday evening London time. I am interested in knowing if ...
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26 views

Futures vs Forward pricing with different interest rates using binomial model

I'm given the aforementioned parameters for a two-step binomial model where the underlying pays no dividend, $S_0=50$ and $T=2$. With this information I was able to calculate the risk-neutral ...
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1answer
48 views

Is the forward price equal to the future price?

If $f^{T_1}(t)$ is the price of a forward and $F^{T_1}(t)$ is the price of a future on some stock, both maturing at date $T_1$ and with the assumptions: no dividend constant interest rates no ...
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1answer
70 views

Hedging with forward contract

I am wondering what strategies that can be used in hedging with forward contracts in commodities market. I only need to buy the forward contract (long position), let's say a one month contract. So my ...
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14 views

Balance sheet items which might show exposure to hedging or the prevalence of forward contracts

I do have a panel data set on North American companies from Compustat covering balance sheet and income information. I am wondering if there is a possibility to use a balance sheet variable as an ...
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26 views

Market implied probability of central bank rate change

Recently, I've come across this article, which is offering a simple model for estimating the probabilities of interest rate cut/hike from the Central bank. This is done by using market data, ...
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1answer
34 views

Decomposing Co-variance of Two Assets Terminal Prices into Forward measures

Let $X_T,Y_T$ be the terminal values of two price processes following Continuous Gaussian Motion (I.E.) let us assume no jumps. Further assume the correct forwards/futures price is given by $F^X_{t,T} ...
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1answer
41 views

Back of the enveloppe forward irs pricing

trying to have a back of the enveloppe way of working out generic forward starting swap rates like 2y2y or 5y3y to put in a spreadsheet without too much loss of accuracy. Whats a good way to look at ...
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3answers
232 views

How can I use the Radon-Nikodym theorem to show that forward measure is indeed measure?

The following statements are taken from the Wikipedia page for forward measure. Let $$B(T)=\exp \left(\int _{0}^{T}r(u)\,du\right)$$ be the bank account or money market account numeraire and $...
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43 views

Application Itô's Lemma: Forward to Spot process

I am working on the following equation (I want to apply Ito's lemma on it): and I know that: and also and My problem is that I want the dynamic of F(S,T) without S because I need first to ...
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1answer
98 views

Difference between Price and Value in Forward and Futures

Consider forward and futures contract on a zero-coupon bond. Denote the time $t$ forward (contract) price on a $T_2$-maturity zero-coupon bond with delivery date $T_1$ as $F(t,T_1:T_2).$ Similarly, ...
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44 views

How to Calculate Discrete Currency Returns for Short Positions

I need to calculate currency returns for 1) short selling the currency and 2) going long in the currency. When going long, the currency is sold at Forward price $F_t$ and bought at spot price $S_{t+1}$...
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3answers
143 views

Are forward rates for an IRS computed between reset dates or between start dates?

In order to price the floating leg of an IRS I am computing forward rates for future coupons, but I'm not sure whether I have to compute such rates between reset dates or between start dates. My ...
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2answers
68 views

Forward swap sensitivity

How do we replicate a forward swap using ordinary swap? Do we have either sensitivity or present value on forward interest rate swap prior to the effective date?
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1answer
73 views

Simple forward price of a commodity formula

Given the spot price of a commodity C, an annual interest rate r, a time to maturity in years t, and storage and insurance cots to maturity s we can express the forward price (using simple interest) ...
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1answer
135 views

Calculate forward price based on option chain

I've got historical data for a spy option chain which looks as follows ...
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1answer
76 views

Arbitrage when discounting and forward computation is done with different curves

I notice that (equity derivatives) trades generally are priced with different forward curve and discounting curve, which clearly lead to arbitrage. Is this arbitrage value too small to be ignored? How ...
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1answer
99 views

Constructing an arbitrage opportunity for a company involving Forwards

Let's say an investor enters a long forward contract on 100 units of underlying assets $S$ and maturity $T$ = 4 years. The asset $S$ pays no dividends and the spot price of one asset is $S_0$ = £5. ...
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3answers
156 views

Future Versus Forward Price When Underlying Asset Price Positively Correlated with Interest Rate

I'm reading a book called a Practical Guide to Quantitative Finance Interview, and cannot make sense of the solution for a particular question, so I really appreciate your advice: Question: What is ...
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1answer
178 views

Forward price vs. futures price - Wilmott

I am reading Paul Wilmott's book PWOQF2, and there is something I don't get in his derivation of the convexity adjustment between forward and futures prices (chap. 30). He models $S$ and $r$ ...
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1answer
128 views

Payoff of Forward Contract

Consider the following notation: $P(T_j,T_2)$ is the price of a zero-coupon bond at $T_j$ with maturity $T_2$. $F(t,T_h,T_2)$ is the price of a forward contract at time $t$ on the above $T_2$-...
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1answer
78 views

How to change the Libor rate to Forward Libor rate in Swap?

The realised PV of a swap (notional is 1 ) is : $Swap(t)=\sum^n_{i=1} \tau_i \times D(t,Ti) \times (L(Ti, Ti, Ti+ \tau_i) - K)$ How do we get the expression with forward rate : $Swap(t)=\sum^n_{i=1}...
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93 views

what numeraire is used to price an FX forward contract

By non-arbitrage, it is easy to show the relationship between fx forward and fx spot via the domestic and foreign currency interest rates. I am wondering how we can express this in terms of the ...
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34 views

Hedged portfolio dynamics under T-forward measure

I'm looking to find the hedging PDE for a multi-currency derivative $u(F_d, F_f, X,t, T)$ under the T-forward measure, using the delta-hedging argument (F - forward rate, X - forward FX rate). ...
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42 views

Retrieve zero coupon curve from forwards

Let's suppose I am given a forward swap curve of a certain maturity (10Y). The curve is not very smooth and is decreasing but whatever. I have the curve : $S(0,t,t+T) = \frac{P(0,t) - P(0,t+T)}{\sum_{...
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1answer
81 views

What is the difference between Cost of Currency Hedging and the Price of a Currency Pair Forward?

I am looking at Reuters Datastream and all they seem to provide is the settlement price of the CME EURGBP contract (which more or less equals current spot). But what does it actually cost me to ...
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2answers
721 views

Calculating bond forward rate/price

What's the difference these two methods on calculating the bond forward rate/price. First of all I'm assuming forward rate is the same as forward price in this context, if this assumption is false, ...
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1answer
448 views

What happened to future price if rates become negative?

Imagine the spot price of a non deliverable and not paying dividend asset is 100\$. With positive rate, the theoretical formula $F = S \cdot e^{rT}$ give us a future price higher, let's say 105. If ...
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5answers
494 views

Equity Forward Price calculation

In the book of John Hull, the price of an equity forward on a dividend paying stock is formulated as: $$F_0 = (S_0 - I)e^{rT} $$ where $r$ is the risk free rate and $I$ is present value of the stream ...
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36 views

Dimension reduction for worst of basket on $min(S_1, S_2)$

Suppose we want to price an exotic equity which is a function of $min(S_1, S_2)$. To do this, I'm trying to compute an implied volatility surface for $min(S_1, S_2)$ and then price the option using ...
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43 views

Negative drift when calibrating GBM parameters

Setup for question: Consider a basket of $N$ stocks $\{S^1, S^2, \dots, S^N\}$. For fixed strike $K$, each stock in the basket, $S^i$, follows the SDE $$dS_t^i = \mu^i(t) S_t^i dt + \sigma^i(K, t) ...
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76 views

Replication of a dividend swap

I wanted to know how banks replicate dividend swap, my best guess is to take the spread between a Total Return Swap and a Forward.
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1answer
61 views

Basic FX-Forwards trading Guide [closed]

What fundamentals or other factors should one follow to trade currency Forwards intraday?
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2answers
271 views

Interest rates impact on forward prices

In stock option markets, rising interest rates will increase the froward price, causing call values to rise and put values to fall. But my understanding is that rising interest rate will cause stock ...
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220 views

Constructing USD 1M Libor Forward Curve

Hope you are doing fine. I am pricing a 1month IRS. For that purpose in order tu build the forward curve i have to use the following. Since USD 1m instruments do not exist, one has to use basis ...
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1answer
558 views

Constructing an FX forward curve

A lot of our clients are currently using interest rate parity as a means of constructing an FX forward curve. For instance, to construct the USD-GBP FX Forward curve, they are using the USD LIBOR, ...
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2answers
617 views

Forward Volatility vs Spot Volatility in Option Skew Models

My question is regarding Volatility Skew Models and their inputs. I have noticed that a vast majority of models take as an input the forward of the underlying (even in the case of stocks - where the ...
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1answer
75 views

FX Forward last day first day premium

How exactly do you trade the turn of the year/quarter effect (also known as last day-first day effect). How do you track this data, is it directly quoted in the market or is it interpolated?
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1answer
61 views

Units of measurement for Minimum Variance Hedge Ratio

The minimum variance hedge ratio is given by $h=p*\frac{\sigma_S}{\sigma_F}$. I was wondering if you wanted to calculate the S.D yourself and the spot prices were in Dollars per barrel while futures ...
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2answers
559 views

Why are FRA/futures convexity adjustments necessary?

This would be my explanation for the reason that convexity adjustments must exist: Futures are margined daily, such that if a trader is paid a future and rates goes up then money is paid into their ...
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2answers
110 views

Gold forward price

In the Hull book, i saw the following exercice and its answer : Suppose the one-year gold lease rate is 1,5% and the one-year risk-free rate is 5%. Both rates are compounded annually. Calculate the ...
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1answer
101 views

Computing FX forward returns using spot returns and an existing term structure

Sorry for the naive question, I am new to the area. I have YTD spot returns on the USD/GBP pair and a forward yield curve. How would one go about computing the forward returns in 2 years using this ...
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2answers
148 views

Strategy if dividend is lower than expected

Here is a question I encountered: In 2009, a trader believes that dividends for a stock in 2011 will be lower than expected, what is the best strategy among: long/short 2010 forward, long/short ...
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154 views

How can we value NPV for a standard FX Swap?

hope you are all well! Was just wondering how we can value the NPV on the value date for a FX swap - i'm sure it's by evaluating the interest rate payable/receivable from the trade date until the ...
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1answer
192 views

Principal Components Analysis on overlapping contracts

I am conducting several PCAs on the gas forward curves (months, quarters, seasons, calendars) for hedging purposes which give me some rather reasonable and stable results. However, these contracts ...
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99 views

value of forward contract at inception

I am reading a derivation of the forward price $F$ of a forward contract. I think the author uses a circular argument to assume that "the value of the forward at inception is equal to 0" because the ...
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1answer
158 views

Pricing an Asian style forward contract with early exercise feature

Is there an analytic way to price or approximate a contract with payout $A_t - K$, where $A_t$ is the running average price of the underlying asset from $[0, t]$ and $K$ is (fixed) strike. If this ...