Questions tagged [forward]

A contract between two parties to make a transaction at a specified future time.

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34 views

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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59 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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107 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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3k views

How to calculate the CVA of a forward contract?

I am having trouble calculating the CVA of a forward contract. The question is presented below Question: There exists a long forwards position underlying on gold with 2 years remaining. The ...
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142 views

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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135 views

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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2answers
112 views

Bid Price of a Forward?

Say I am a market maker. The ask (me selling it) formula is pretty common in textbooks etc by no arbitrage: $$F = S \cdot \text{exp}(r-d)$$ where $r$ is interest rate and $d$ -- dividend. Again, by no ...
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52 views

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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213 views

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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1answer
2k views

Pricing Uneven FX Swaps

I'm trying to figure out how to price uneven FX swaps. I just started on a FX trading desk and have been told that the all-in rate for a 2-legged FX swap is equal to: 1) Quote for market side of net ...
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43 views

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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36 views

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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51 views

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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171 views

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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193 views

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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132 views

Can you perform covered interest arbitrage when the forward rate is too low?

In covered interest arbitrage, if the forward rate is too high, you can (i) exchange domestic for foreign currency today (ii) invest at the foreign deposit rate (iii) exchange back to the domestic ...
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1answer
312 views

Which is the "correct" 5Y5Y Inflation Expectation on Bloomberg, and what are the differences?

When the market talks about 5Y5Y expectation, is it referring to FWISUS55 Index, or G0169 5Y5Y BLC2 Curncy on Bloomberg? I ...
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1answer
70 views

Calculation of annual yield for NDFs

I was wondering if someone can help me understand how to interpret the "annual yield" that is getting calculated below for NDFs. This is the way it's currently done in the place I work, but ...
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1answer
171 views

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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1answer
156 views

About American Forward Pricing

I just want to know if there is an analytical solution about FX American forward. I recently get a solution that computes price for each τ-maturity forward contract and then take a maximum price. So, ...
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416 views

When to Choose FX Swap or Forward

Assume we have an exporter who is looking to hedge their USD exposure. How would they decide between choosing a FX swap or a FX forward contract to do so? I understand that a swap has 2 exchanges, ...
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88 views

Compute forward swap rate from spot swap rate?

I am pretty new to interest rate swap and this question might sound silly. Why does 3y2y (3yr forward and 2yr tenor) swap rate roughly equal to (5*5y swap - 3*3y swap) / (5-3)? Any explanation would ...
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49 views

Is there a name for the common class of instrument which Spots and Forwards belong to?

I'm doing some database design where I'm modelling Forwards and Spots. They share the same schema, the only difference is that Spots have a settlement date of the time they were created at, while ...
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2k views

FX Option pricing on Forward vs. Spot

In a GBM world with riskless domestic and foreign interest rates, what would be the correct model for a FX plain vanilla option given the statement that this option is priced on the forward? I guess ...
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50 views

Covariance matrix for risk factors of a FX Forward contract

Does it make sense to calculate log-returns of interest rates from a zero curve? Context: I'm trying to build a variance-covariance matrix for the risk factors of a USDBRL FX Forward maturing in 1 ...
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23k views

Formula for forward price of bond

What is the formula for the forward price of a bond (assuming there are coupons in the interim period, and that the deal is collateralised) Please also prove it with an arbitrage cashflow scenario ...
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4k views

Price a forward contract on a zero-coupon bond

I'm trying to calculate the price of a forward contract on a zero-coupon bond (ZCB). The forward contract matures at $t_1$ and the ZCB matures at $t_2$. So is the price of the forwards contract just ...
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35 views

Value american forward as american put and american call

Can I value an american forward with strike K and maturity T as the sum of a bought Call and sold Put, both american with same strike K and maturity T? If not, why?
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38 views

Carry and expected return of a short bond basis position

If we assume net basis is 0, the bond trades above par, the bond’s yield > than the term repo rate, what is the expected pnl of being Short the ctd vs long futures? I would have thought the ...
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41 views

QuantLib forward dates not matching

I am getting forward swap rates from spot rates of various different curves (3M USD Libor, 6M GBP Libor, 6M Euribor, Fed Funds, SONIA & EONIA): ...
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2answers
2k 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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1answer
249 views

Pricing of forwards contracts

Of the courses I am taking in college this semester, two are Financial Mathematics and Derivatives. In each course, we learn different formulas to calculate the forward price of a forward contract. ...
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122 views

Forward EURUSD exchange rate for a Future date

Assume that on today's date as of 11/22/2020 the 1 year forward exchange rate for EUR/USD is ...
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1answer
56 views

Odd Result from Computing Correlation Matrix from Kalman Filter Posteriori Covariance Estimate

I am using a Kalman Filter to estimate the return dynamics of a forwards curve on a particular commodity. My state space is the initial forwards values, and an initial guess of the drift functions for ...
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1answer
429 views

Quanto Factor - FX Forward

In the paper Quanto Options by Uwe Wystup the "quanto factor" $Q$ is used to describe forwards/options when quanto-ed into a different currency, e.g. $$\text{Quanto Forward Value} = Q \cdot e^{-r_Q T}...
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Brazil FX market "cupom cambial" [duplicate]

I am trying to understand the role of cupom cambial (onshore dollar rate) in relation to the BCB swaps which are domestic NDF settled in real. "The cupom cambial is priced in basis points as an ...
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31 views

Future forward convexity adjustment as the expected profit from reinvesting margin payments?

Having looked at the formula for the convexity adjustment as a function of the covariance between rates accruing till maturity and asset price, I have an intuition that the difference between fair ...
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38 views

Is there a forward contract the underlying of which is another forward contract?

Is there a forward contract on a forward contract? Let us take a simple example: Persons $A$ and $B$ agree that $A$ sells $B$ some asset tomorrow at the fixed price $K_1$. This is a normal forward ...
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1answer
55 views

Delta of a forwards contract

in university's lecture notes, from what I understand using the replication of portfolio principle to price derivates, the forward price of a contract K should be: $K = P_0(1+r)$ where $P_0$ is the ...
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2k views

Valuation of open FX-Forward

So called closed FX-Forwards are well known forward contracts where some amount of foreign currency is bought at a specified date in the future for a price fixed "today". Such contracts can be ...
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3answers
184 views

How does the term premium of the 10y20y Treasury forward rate relate to the 30y rate?

I'm reading recent research on Treasuries and to paraphrase, it says that long term 10y20y Treasury forward rates now have a positive term premium over the long run nominal funds rate (neutral rate). ...
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63 views

Carry & Roll, roll down current curve valid assumption?

The assumption for calculating the roll of a fixed income instrument is that you roll down the current spot curve. So if 10y rate is 2% and 9.5y is 1.8% the carry for the coming 6 month horizon is ...
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83 views

How to calculate the Net Present Value (Market-to-Market Value) of a plain vanilla FX forward?

I would like to understand the math/economics behind the calculation of plain vanilla FX forwards. Let's assume the following example: ...
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2answers
64 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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674 views

How does one calculate carry-roll-down theoretically assuming expectations of short-term rates are realised

I am not asking for an explanation that is hugely quantitative, but rather one that is more intuitive. I am aware that there are different assumptions that one could take when it comes to carry-roll-...
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476 views

what is the difference between an NDF and a FX Forward contract

Reference of NDF definition: https://www.investopedia.com/terms/n/ndf.asp For example, an NDF contract on Chinese Yuan and US Dollar is pretty much a CNH/USD fx forward contract, isn`t it ? In terms ...
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39 views

Return of a bond held to maturity and realised forward rates

Let's assume that forward rates are realised as part of a carry-roll-down scenario. The gross return of a bond under the realised forward assumption to maturity is: $\frac{c(1+f(2))(1+f(3))...(1+f(T))}...
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113 views

Is the pricing formula for FX Forwards the same for FX Swaps?

If I use fwd_price = S*(1+r_term)/(1+r_base) to determine the theoretical value of a forward, how should I tweak the formula to price a FX swap? Assuming swap = fwd-spot, swap_price = S*(1+r_term)/(1+...
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89 views

How does this formula for the price of a bond in terms of forward rates work?

I am currently reading Chapter 3 of Tuckman's 'Fixed Income Securities' and it states that we can write the price of a bond using its term structure in terms of forward rates but with periods of ...

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