Questions tagged [forward]

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

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16
votes
2answers
17k views

Why using 3 months forward to hedge fx risk on a fund of funds portfolio?

In my previous job, a fund of funds, they used 3 months forward FX contracts (renewed every 3 months) to protect their portfolio against currency risk. If I do understand why forwards are useful for ...
14
votes
2answers
835 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 ...
11
votes
1answer
2k views

What do eigenvalues/eigenvectors of the yield/forward rates covariance matrices mean?

I have 5 bonds (with maturities 1,2,3,4,5 years) which I calculated the yield curve for 10 days. I also calculated the forward rates from the yield rates. Now I've been told to calculate the ...
10
votes
2answers
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 ...
10
votes
1answer
7k 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{...
9
votes
2answers
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 ...
8
votes
1answer
7k 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 ...
8
votes
1answer
731 views

compute time from FX forward, how use DEPO rates?

assume I have following delta-term vol data from broker: ...
7
votes
1answer
27k views

Implied interest rate from FX swap

This is not homework. I am trying to calculate the implied interest rate of one currency (C2) using an FX swap and the interest rate of another currency (C1 - base). I have the following: Spot: 7....
7
votes
1answer
259 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 ...
7
votes
2answers
2k views

VaR mapping - Forward Foreign Currency Contract

I have a question about VaR mapping for FX forwards. Please bear with me while I outline the problem. Philippe Jorion's book discusses VaR mapping; a means to break down complex instruments into ...
7
votes
3answers
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 ...
6
votes
3answers
8k views

Relationship between forward and option prices

Do forward prices factor into option prices at all? It seems to me from Black-Scholes that you just need a spot price and interest rate r. I understand that $F_t = S_0 e^{r t}$, but I don't know if ...
6
votes
1answer
209 views

BlackProcess' constructor $x_{0}$ argument in QuantLib

I am currently using BlackProcess to price options and I have a doubt related to the $x_{0}$ argument of the constructor: I've figured out it should be the forward ...
6
votes
1answer
780 views

FX Forward pricing with correlation between FX and Zero-Cupon

I would like to extend my question about about FX Forward rates in stochastic interest rate setup: FX forward with stochastic interest rates pricing We consider a FX process $X_t = X_0 \exp( \int_0^t(...
5
votes
3answers
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 ...
5
votes
1answer
518 views

Prove arbitrage opportunity

The continuously compounded interest rate is $r$. The current price of the underlying asset is $S(0)$ and the forward price with delivery time in 1 year is $F(0,1)$. Short selling of the stock ...
5
votes
3answers
6k views

Cross Currency Swap pricing

I have seen two methods for calculating the value of a xccy swap - 1) Convert the future foreign payments to the base currency using forward FX rates, net with the base currency payments and ...
5
votes
1answer
575 views

meaning of discount term in FRA value

Consider a forward rate agreement on LIBOR (say), which starts 2 months from now, expires after 3 months and has strike $K$, and is based on $3M$ LIBOR -- $FRA_{2\times 5}$. Now the present value of ...
5
votes
2answers
7k views

How to derive Black's formula for the valuation of an option on a future?

I've got a question about 1976 Black Model and Bachelier model. I know that a geometric brownian motion in the P measure $dS_{t}=\mu S_{t}dt+\sigma S_{t} dW_{t}^{P}$ for a stock price $S_{t}$ leads (...
5
votes
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 ...
5
votes
0answers
322 views

EUR/PLN and EUR/USD delta-term-vol surface quoting convension

does anyone know for sure what is the FX market convension to quote delta-term pairs for EUR/PLN, for EUR/USD. I know that for EUR/PLN it should be delta p.a forward, for EUR/USD it should be delta ...
4
votes
2answers
358 views

A proof that the final payoff on a futures contract is twice that on a forward contract

Following is an argument demonstrating that the final payoff on a futures contract is twice that on a forward contract, contrary to what I believe is the accepted truth that the two payoffs are the ...
4
votes
1answer
3k views

EuroDollar vs FRA

I am not quite clear about this. When people mention Eurodollar are they mean Eurodollar Futures? One of the difference between Eurodollar and Forward Rate Agreement(FRA) is basically difference ...
4
votes
3answers
330 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 ...
4
votes
2answers
7k views

FX forward curve building

Can someone explain which curves are used to calculate FX forward rates? I have the idea that it involves using the local OIS curves for both currencies, but my calculation shows that it is not the ...
4
votes
2answers
2k 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.
4
votes
3answers
866 views

Volatility and Counterparty risk for FX Forward

How does the change in FX volatility affect the counterparty risk of an FX-forward? Should it not be riskless since the forward itself is "protecting" the exchange rate fluctuations?
4
votes
2answers
5k views

Trading physical gold vs XAU

What is the difference between trading physical gold forwards and XAU/USD forwards? Why are both traded? The physical gold forward would obviously be settled physically, but how is an XAU/USD settled, ...
4
votes
5answers
11k views

Calculate theoretical forward price of a stock

The current price of a stock is USD400 per share and it pays no dividends. Assuming a constant interest rate of $8% $ compounded quarterly, what is the stock's theoretical forward price for delivery ...
4
votes
1answer
8k views

Equivalency of FX forwards and FX basis swaps for risk-management purposes

Can one deem an FX float-to-float swap and a FX forward equivalent on dates immediately after repricing? The reason I am asking, I am hedging something that can be modeled via an FX forward, I was ...
4
votes
4answers
6k views

Simple value of a Forward contract at an intermediate time question

I am taking "Financial Engineering and Risk Management Part I" from Columbia University on coursera and I got a seemingly simple question wrong on the first quiz. This is all based on the no-arbitrage ...
4
votes
1answer
1k views

HJM simulation problem

I'm trying to simulate a 3-factor HJM model. I got the algorithms from Glasserman book. In my case, I have $3$ maturity:$ 0.25y, 0.5y, 0.75y$. So my time grid is: $t_0=0,t_1=0.25,t_2=0.5,t_3=0.75$. ...
4
votes
0answers
99 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.
4
votes
0answers
171 views

VAR FPCA analysis paper replication

I've been trying to replicate the following publication: CONSISTENT FUNCTIONAL PCA FOR FINANCIAL TIME-SERIES, Sebastian Jaimungal, Eddie K. H. Ng, 2007 but I havent been able to get the same results ...
4
votes
0answers
2k views

Carry Trade vs synthetic Carry Trade using forward contracts

When it comes to foreign exchange carry trade strategy, the definition is straightforward: an investor borrows 1 US-\$ in the US (low interest country) and invests that \$1 to AU (high interest ...
3
votes
3answers
426 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, ...
3
votes
3answers
1k views

Construct option and stock portfolio

If a riskless security costs 100 today and will cost 120 at time T, a stock costs 50 today and will either be 70 or 30 at time T, and call options on the stock have strike price 50 expiring at time T, ...
3
votes
3answers
404 views

Why is the spot price not used as the forward price when a forward contract is created?

If the initial value of a forward contract is zero, surely the forward price used would be the spot price at the time the contract was created? However, my notes tell me that the forward price F, at $...
3
votes
5answers
2k 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 ...
3
votes
2answers
218 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 ...
3
votes
2answers
106 views

Why forwards are not traded in exchange market?

Why they are only traded OTC ? And why in general derivatives are all traded only OTC ? Why do banks prefer to trade OTC rather than exchange market ?
3
votes
1answer
193 views

Why are some metals in contango (inverted) forward curve and some in backwardation (normal) forward curve?

I am scrolling through the various metals on lme.com and some are in contango and some in backwardation. For example: Copper: backwardation Aluminium: contango Further examination of other metals ...
3
votes
2answers
4k views

IMM Swaps vs. Forward Swaps

Could we think of IMM dated swaps as forward swaps (since they trade only on specified dates and they might not be the current date)? For example, today is June 2nd, the next IMM swap is June 14 (not ...
3
votes
2answers
367 views

Pricing forward contract on a stock

Please tell me where I've gone wrong (if I did in fact make a mistake). I'm pricing a long forward on a stock. The usual setup applies: This has payoff $S(T) - K$ at time $T$. We are at $t$ now. $S(...
3
votes
1answer
244 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 ...
3
votes
1answer
309 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 ...
3
votes
1answer
4k views

How to compute the forward price using a replicating portfolio?

I post this question here as I didn't receive an answer in the Mathematics community. I am trying to understand how replicating portfolios can help us determine fair prices. Suppose we have a 3-year ...
3
votes
1answer
240 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 $r$ ...
3
votes
2answers
612 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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