Questions tagged [forward]
A contract between two parties to make a transaction at a specified future time.
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How do we price a Non-USD currency FX Forward pair by using cross-currency basis for each currency?
For e.g., when pricing a GBPUSD FX-Forward we build the USD SOFR curve through which we get USD risk-free rate. For the GBP risk-free rate, we use the sum of GBPUSD Basis and SONIA. However, if we ...
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Why does cost of borrow have anything to do with the equity forward price?
By non-arbitrage, you buy the stock and hold it to the delivery date of the forward, only cost of funding (of cash) and equity dividend would be involved in the equity forward calculation. Where does ...
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When Forward is a martingale under risk-neutral measure?
Why is such a proof for futures not suitable for a forward?
For futures we have:
$V_{t}$ is self-financing portfolio: $V_t = \frac{V_t}{B_t}B_t$, where $B_t$ is a riskless asset
Suppose $H_t$ - number ...
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Deriving central bank hikes/cuts from a swap curve
Can you please explain the following? Please assume I am 5 years old.
how do you derive the cuts/hikes of the policy rate priced in a swap curve?
why you can derive the cuts/hikes only from a swap ...
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swap carry/rolldown mid-period
Pretty much all discussions and examples I have seen discussing carry and roll down for fix-flt interest rate swaps are ones where the forward date coincides with the coupon dates on both legs.
It ...
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Forecasting forward curve using Gaussian Process Regression
I have daily closing prices of crude oil monthly contracts up to 36 months. Some contracts are not very liquid so there are missing prices at random. I stitched together contracts to make them rolling ...
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Value of a forward contract proof
I am reading the book - "Mathematics for Finance: An Introduction to Financial Engineering" by Marek Capinski and Tomasz Zastawniak. I am going through the proof of Theorem 6.4 - For any $t$ ...
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Hedge up-knock-in forward option
I wolud like to know if there is an analytic formula to to valuate a up-knock-in forward, it means
\begin{equation*}
(S_{H_B}-S_T)1_{[H_B\leq T]}
\end{equation*}
where $H_B=\inf[t\geq0 | S_t=B]...
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Why must the forward price be equal to the expected value for an underlying security [closed]
In page 59 of his book Option Volatility and Pricing, Natenberg argues that the forward price of an underlying security is essentially the market's consensus expected value for that security, ...
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Substituting the basis swap for the FX forward
I have come across a response to the question titled "Cross currency swap a combination of 2 Interest rate swap" on this site. There, it is stated the following:
Long story short: As @...
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Futures and Forward prices under the Heston model and their spread
This might seem like a very trivial question but I am really not so sure about it so I thought I post it here.
Assuming a Heston model of the form
\begin{eqnarray}
dS &=& (r-q)Sdt + \sqrt{v}...
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Why does forward price equal spot price at delivery? [closed]
Disclaimer: I understand this is a basic question that gets
addressed in most 101 textbooks. Yet I have reviewed many of them
not finding a satisfactory answer. Please bear with my
ignorance.
Suppose ...
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No arbitrage argument for the price process of a forward contract
I was reading the book Stochastic Calculus for Finance II by Shreve and I read the proof that the forward price for the underlying $S$ at time $t$ with maturity $T$ is given by
$$
For_S(t,T) = \frac{S(...
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Cost of carry proof
I'm currently review Arbitrage Pricing in Continuous time by Bjork and am stuck on this concept:
Honestly I'm not too sure where to start as this chapter makes no mention of the Cost of Carry formula ...
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Replication Proofs and No-Arbitrage Proofs
I've just started studying quantitative finance and have had questions closed on this forum for being too basic; if that's the case for this one please let me know a more suitable place to ask.
Assume ...
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"Forward" attribute for an option
I am downloading implied volatilities for some options. I noticed, however, that I am also able to choose "Forward" as an attribute for the option. What is this? Is it an option written on a ...
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What is the dynamic of the forward price process under $\mathbf{Q}$?
Let me define the Spot price process of an underlying as follows: $$dS_{t}=\mu_{S}S_{t}dt+\sigma_{S}S_{t}dW_{t},$$
where $\left(W_{t}\right)_{t\geq0}$ is an appropriate Wiener-process, so $\left(S_{t}\...
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Call option on forward [closed]
What is the trade description behind a call option on a forward? How can it be described with words and not with mathematical formulas?
So what is the intuition behind the following payoff:
$$Payoff_{...
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Calculate Carry from Z-spread to Forward Spot Curve
I am considering a 5-year bond. I can buy this 5-year bond today, or I can buy it 3 months from now.
My question pertains to carry on the forward position. If I buy the bond forward and use the ...
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Black and Scholes PDE in terms of Future Price [closed]
I was trying to understand why the Black and Scholes PDE for the value of an option, $V (F , t)$, with the forward price, $F$, as underlying is
$$\frac{\partial V}{\partial t} + \frac{1}{2}\sigma^2F^2\...
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Forward on a stock with Dividends
I have seen the question here and have gone through the answer, but I still don't fully understand why the approach below, based on no-arbitrage, yields a different answer.
To summarize:
At time $t_0$...
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If the interest rate is constant, then the forward price and the futures price are equal? [closed]
I was going through the proof about the equality of forward and futures price (assuming constant interest rate) in a book. Somewhere, the authors used the fact that suppose we start with two capitals -...
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Bond forward arbitrage relationships
I am trying to see if the following statement is true or not and I would really appreciate your help.
The statement is as follows:
$\forall $ Tradable Asset $V(t)$,
$$ E[\frac{P(t,T_{i})P(T_{i},T_{i+1}...
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VaR on forward contracts
I am trying to calculate a historical VaR, let's say on a forward contract of Gas that has a delivery in December 2022 ( begin delivery = 1st December 2022 and end delivery = 31st December 2022).
...
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Crypto perpetual futures (swaps) pricing away from instantaneous moment of funding
Most perpetual futures offered by crypto exchanges employ a funding payment mechanism, that acts to periodically return the price of the perpetual to the underlying index price. The mechanism is ...
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Forward returns measurment?
Is there a common approach to measure how a forward contract is performing?
Here's what I'm thinking, each day you would price your forward with the next formula.
$$
F_t = S_0 e^{-r_f T}-Ke^{-r T} = (...
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Reasons for negative autocorrelation of forward prices
I am working on each trade day's forward prices of gasoline. I noticed that the autocorrelation at lag 6 is significantly negative. I know how to interpret negative autocorrelation in a statistical ...
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Trying to check this 1Y1Y forward treasuries calculation
here is a screenshot of the FWCM screen on Bloomberg:
https://i.stack.imgur.com/2BT3y.jpg
I'm trying to check that I understand this by calculating the 1Y1Y which according to this matrix is 3.6877%.
...
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Is a swap fixed rate always a par yield?
I am learning about using the OIS fixed rate to value a plain vanilla LIBOR swap. I'm using Bond Math by Smith, and the accompanying online addendum.
To bootstrap the discount factors, the author ...
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Why is the formula for the 5y5y inflation swap forward on bloomberg 2*USSWIT10 Curncy-USSWIT5 Curncy
If USSWIT10 Curncy is the expected average inflation for ten years and the USSWIT5 Curncy is the expected average inflation for five years, I don't know why that formula would tell me what the ...
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Implied forward rate with forward points
I've been studying the application and derivation of a domestic implicit rate in a FX contract when your input are the forward points and the foreing rate. Let's establish some with some ideas first.
...
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How to compute portfolio weight of forward contract
how would one formally calculate the portfolio weight of a Forward position?
Suppose I have 100 mio portfolio. I have 50mio in Tesla shares and I have 50mio in Microsoft shares, and I enter into a 1 ...
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Is there anyone trading Then-Current Treasury Forward?
The treasury forward traded for those on-the-run or off-the-run makes sense. You simply trying to hedge the treasury bond already issued by calculating the forward price of the bond.
I was wondering ...
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How is VaR calculated for forward contracts accounting for European put options?
My initial idea is to create profit and loss using an equation like this:
\begin{align}
P\&L = & \text{European Put P&L} + \text{Forward P&L}\\
P\&L = & [(K-S_T)^+...
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Is Clark's Futures calculation incorrect?
I was working through Clark's Commodity option pricing: A practitioner's guide published 2014, and when I get to the Futures case study section 2.3.3, the answers I get differs from his (I tried to ...
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Forward volatility vs current volatility
I am working on a Quiz that asks why the 6 month forward volatiliy could be greater than the 6 month current volatility.
I would first like to clarify if I understand the Question correctly. When we ...
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Why is the forward price of an ETF that holds futures equal to the current price of the ETF?
I've seen some ETFs that only hold futures (and some cash) whose options are being priced with a forward price equal to the current ETF price, even for 1 year out options (at least according to ...
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How to derive forward price on stock with continuous dividend
Let $F_{t,T}$ be the forward price of a stock $S$ at time $T$ and $t$ be the current time. The stock pays a proportional continuous dividend at a rate of $q$ and the risk-free rate is $r$. How can I ...
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Why would one need forward prices to perform derivatives pricing?
I am trying to understand the purpose of inputs the software of my company is using. Amongst others it needs calibration instruments, a model type, initial values of the respective underylings and a ...
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Does change of futures price influence spot price to change as well?
There is no problem in understanding how the changes in spot price can cause the future price to change. For example, if we have a big changes in supply and demand (e.g. war breakout, unexpected heavy ...
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Should I train (and apply) a commodity forecasting model using nominal or real historical (futures) prices?
I am forecasting hourly power prices by applying Gradient Boosting to, among other variables, average monthly gas prices. The algorithm is currently trained on historical nominal monthly average gas ...
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Forward/futures contracts that satisfy $F=S\exp(rT)$
I am interested in estimating riskless rates from forward/futures data. The standard forward pricing formula is given by
$$F=S\exp(rT).$$
From this we can solve the interest rate used in pricing as a ...
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How to calculate the theoretical price of a forward in CHF on a stock index future in EUR?
I am looking for a pricing model of the following contract, which is basically a forward contract, maturity in 3 month with some sort of strike on a (equally weighted basket of) stock index futures in ...
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A question about exercise from "Paul Wilmott introduces Quantitative Finance"
I am new on this forum and i have just begun my adventure with finances, so please be patient.
I was solving exercises from "Paul Wilmot introduces Quantitative Finance" and i came across ...
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Pricing of a tracker certificate on basket of index futures
i'm new to Quant Stack Exchange but i already saw that the quality of the answers is outstanding, however, i have a question for which i haven't found an answer yet:
I'm looking for a pricing model/ ...
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Replicating call option in market which only trades stock and forward contracts
I am having a bit of trouble with a problem I've been given.
Consider a market which only trades a stock and forward contracts. There's only time 0 and 1.
Initial stock price S_0 is 10, the forward ...
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Bergomi's model normalisation
On his book https://www.amazon.fr/dp/B019FNKQS8/ref=dp_kinw_strp_1 Bergomi derives a multifactor mean reversible volatility of the volatility such that :
\begin{equation*}
d \xi_{t}^{T}=\omega(\tau) \...
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Is “at the money” referent to the spot or forward price?
This may be a trivial question, but one I wasn’t sure about. Imagine I want to buy a 1 year ATM straddle. Does “at the money” imply buying closest to the current spot price, or does it mean to buy at ...
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Curve Trades - Forward Swap vs Swap(Payer and Receiver)
let's say I want to do a steepening trade. What would be the difference between
entering a swap starting in 5 years and lasting for 5 years (5y5y)
entering a payer swap with a tenor of 10 years and ...
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Why has cross currency basis become higher since the 2008 crisis?
The impact of cross currency basis on FX forward pricing has become more noticeable since 2008, diverging significantly from the interest rate differential, what are the fundamentals behind this ...
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