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Questions tagged [forward]

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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
65 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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1answer
480 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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2answers
63 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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0answers
41 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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2answers
1k 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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1answer
109 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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60 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
71 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 ...
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0answers
41 views

FX Average Forward Pricing

Lookin for documentation on how to price FX Arithmetic Average Rate Forwards. Couldn't find any info on textbooks. Any help is very appreciated.
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2answers
1k views

“Forward price of bond” VS “Price of a bond with a future settlement date”

What is the difference between 1) computing the 'forward price' of a bond at a future time T. ( spot price - carry, involving repo rates) 2) computing the price of a bond (discounting all cash ...
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189 views

Stock forward price argument

Hi I am strangling to understand where is the mistake with the following strategy. Can anyone help me with the following argument? Assuming a stock price follows geometric Brownian motion then the ...
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3answers
378 views

how to simulate FX forwards

My question is how to do Monte Carlo simulation for FX forward contracts. Just imagine you have bought a bunch of FX forwards (in various currencies and various tenors) for hedging purposes and you ...
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2answers
137 views

How to calculate correlation between commodities with forward prices?

I'm trying to understand which is the correct way to calculate the correlation between 2 commodities with forward prices. My idea would be first bootstrap forward prices to have only spot prices for ...
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2answers
733 views

How to calculate this swap rate

What is the 2x5 swap rate? here 2x5 swap rate refers to the 3-year swap, 2 years forward.
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2answers
665 views

Implied term structure from risky discount curve: does it make sense?

We know that, taken every discount curve, it's possible to calculate its forward rates according to our tenor preferences. We know also that it's actually possible to extract an implied term ...
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1answer
1k views

How does the 2-factor Hull White model propagate the forward rates curve?

I've been trying to get a grasp on some of the basics of interest rate modeling, and am looking to simulate rates using the 2 factor Hull White model, which I am aware offers a more realistic model of ...
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1answer
144 views

Why are interest rate swaps the most popular interest rate derivatives [closed]

Interest rate swaps are the most popular interest rate derivatives. Is there a reason why they are more popular than other interest rate derivatives (e.g. forwards, futures)? Is it because they were ...
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1answer
80 views

What is the instantaneous FX rate and used for a FX Forward?

Could someone please explain me what the instantaneous FX rate corresponds to and why it is used in the valuation of an FX Forward trade? It is defined as: FX_Instantaneous= FX_Spot-(ON+TN) where ...
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1answer
104 views

Difference between settlement of Eurodollars and FRA

I am going through J.C. Hull's chapter on FRA and EuroDollar Futures. Taking the case of FRA. I assume $T_0$ is the time when two parties entered into a FRA to fix interest rates they get on a ...
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1answer
77 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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0answers
127 views

Forward implied vol vs Instantaneous vol

In the Discrete Stochastic Implied Volatility Model which is from the standard Heston Model, the model shows the evolution of forward implied volatilities with time. I thought forward implied ...
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2answers
508 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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1answer
3k views

Convexity Adjustment for Futures

Let $B_t$ be the cash account numeraire. The future and forward prices at time t are expressed as: $$ Fut = E_t^Q\left[S_T\right],$$ $$ Fwd = \frac{E_t^Q[S_T/B_T]}{E_t^Q[1/B_T]}.$$ Where $$ \frac{...
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0answers
174 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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0answers
130 views

Extrapolating implied dividend yield

I have liquid option quotes for 1, 2, 3 and 4y expiries. I was able to imply the continuous dividend yield for all of those. How would you extrapolate such implied yield to 5 and 6y expiries?
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1answer
4k views

How to calculate a forward-starting swap with forward equations?

I have been trying to resolve this problem for some time but I cannot get the correct answer. The problem is the following one. Compute the initial value of a forward-starting swap that begins at ...
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0answers
80 views

Replicating Futures from Forwards

Given we understand forward contract precisely with term structure of risk free rates, do we understand futures contracts as a continuous buying and selling sequences of forward contracts so that the ...
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1answer
185 views

Futures and Forward Prices vs interest rates

Textbooks usually state that if an asset's prices are positively correlated with interest rate movements, then its Futures price is going to be greater than its Forward Price assuming the same ...
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0answers
60 views

Forward spot calculation for a dividend paying no-short sell ETF

I am trying to fit an implied volatility curve for options on the SSE 50 etf that has no borrow (no short selling allowed) and pays a single annual dividend. I originally thought I could use the ...
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1answer
95 views

Why is the value of a forward contract discounted to the present value?

I'm not sure if this question has been asked before, but it's a simple one. Let's consider a Forward contract on a non-income paying investment asset. We know that the Forward price on such an asset ...
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0answers
51 views

Financing of an equity forward

How reasonable it is to assume that the forwards (implied through call-put parity from European options) on easy-to-borrow European stocks will "grow" at Euribor/Eonia rate? In other words, is it ...
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1answer
1k views

MtM of FX Forward

I had a look at pnl calculation of FX forward but it didn't quite match my question. Say $X_{t,\tau}$ is the USDJPY FX Forward Rate as seen at time $t$ for expiry $t+\tau$. So $X_{t}^{spot} := X_{t,0}...
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1answer
106 views

Index implied repo gerater than the stock repo

I've observed that the repo rate implied from options on Euro Stoxx 50 is significantly higher than the repo rate implied from options on individual stocks that are constituents of the index. This is ...
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0answers
152 views

Reason for choosing the T-forward measure to calculate expected value of forward curves

Setup I read that when simulating forward curves $(r_t(s_i))_i$ at some future time $t>0$, one is supposed to center them not around $F(0;t,t+s_i)$, but around $$\mathbb E^{\mathbb Q_{t}}[r_t(s_i)]...
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49 views

Different versions of Put-Call Parity

Why is it stated sometimes that $C - P = F$ and in wikipedia it statest that $C - P = D(F-K)$, where D is the discount factor and K is the strike (of both the call and put?). Is this just affected ...
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1answer
13k 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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0answers
78 views

why do forward contracts have varying sensitivity to yield, but futures contracts do not?

I just watched https://institute.cmegroup.com/courses/introduction-to-eurodollars/modules/understanding-convexity-bias as I understand it, if the yield rate of a futures contract increases, the price ...
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1answer
2k views

Mark to market forward contract

(All prices are in $) Say that at time $t=0$, $A$ goes long a forward contract with maturity $T$ on an underlying asset $X$ with forward price 100 \$, that is, $A$ agrees to buy $X$ for 100 \$ at ...
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0answers
136 views

Modelling roll-over and roll yield in a forward strategy

This is a post which serves as a follow-up question to Nature of short VIX strategies. I am trying to understand where the change in value in a synthetic strategy constructed from futures comes from: ...
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1answer
147 views

Confusion in forward contract pricing on a stock using the binomial model

In the financial engineering course I am taking we are studying how to use the binomial model to price derivatives, one of which is the forward. For this question it is related to a forward contract ...
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2answers
123 views

Nature of short VIX strategies

By now, we all pretty much know that the recent upsurge in the VIX Index caused the spectacular failure of some Exchange-Traded Products (ETPs) or Exchange-Traded Notes (ETNs) written on it. An ...
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1answer
222 views

Spot-Forward Relationship - Proof

Does anyone know of a decent proof for the spot-forward relationship of a currency? I've been looking on Google for hours and I'm not getting anywhere. My lecture notes are useless in that they don't ...
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2answers
521 views

Properly interpreting LIBOR curves?

I have a confusion regarding LIBOR curves. I understand what LIBOR means, but what exactly is meant by a LIBOR curve? I would imagine a curve where on the x-axis is time and y-axis the 6-month LIBOR ...
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0answers
212 views

Long term equity repo

Let's assume I have various European stocks and would like to somehow estimate their long-term (5y+) forward prices. As for repo rate for each individual stock, is it reasonable to assume that its ...
2
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1answer
294 views

AUD Forward Rate Agreement and Forward Curve Bootstrapping

The pricing between an Australian Forward-Rate-Agreement is different compared to the US one. The question is whether this is somehow included already in the Quantlib? Also how does it compare to the ...
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2answers
81 views

What is the optimum hedge ratio when trying to hedge one underlying security with another which is similar in natural?

The question is specified as hedging exposure to oil prices using forward contracts on oil) My idea is that we can just purchase one forward contract for each asset,then it should be perfectly hedged, ...
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1answer
136 views

What is the dollar zero rate and the foreign zero rate?

These terms are used in a proof that the forward price of a foreign exchange pair (where the base is USD) at time $t$ is $X_t \cdot e^{(r_s-r_f)(T-t)}$, where $r_s$ is the dollar zero rate and $r_f$ ...
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1answer
75 views

Role of next month's dividends in forward pricing

I'm using the equations given on this page to price forwards on an equity. It's a basic equation that discounts dividends. But my question is: What do we do about dividends that occur after the ...
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2answers
438 views

Falling Futures prices positively correlated with interest rates

I'm having trouble understanding how Futures are worth more than Forwards when price and interest rates are positively correlated but both declining. For instance, a Future with losses of -5 at T(n-...