Questions tagged [forward]

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0answers
146 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
175 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
144 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
243 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
576 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
242 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
328 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
85 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
158 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
79 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
452 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-...
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1answer
128 views

How to regard foreign currency forward as foreign and domestic bonds on VaR

In John Hull's book Options, Futures and Other Derivatives 9th page 507 We want to calculate the VaR of a ...
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1answer
344 views

How to calculate the yield of a forward bond price from the zero curve

We want to use the Duration to convert forward price volatility to yield volatility with ...
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1answer
2k 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 ...
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3answers
3k 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 ...
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1answer
230 views

Price series for an FX forward contract

Let's assume I am buying a NZD/USD 1Y forward for $1000000 on the 20/02/2017. The NZD/USD 1Y forward point is currently -270 and spot rate is 0.8325. (Example taken from here). Now I want to have a ...
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0answers
483 views

Dividend yield for an index

Let's say we want to price an option and so need a dividend yield to plug into Black-Scholes. We can compute an implied dividend yield for a stock using: $$F=S_0 e^{(r-d)T}$$ and by isolating for $...
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0answers
225 views

Decreasing Forward FX rate curve

i've constructed a Forward FX curve using the formula: $F= Spot \frac{(1+I_b*n/N)}{(1+I_c*n/N)}$ when i get these Forward rates for 1 month, 3, 6 till 1 year i got a decreasing forward Fx Curve How ...
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1answer
221 views

Traders view on hedging of FX Futures with FX Forward

I would like to get a trades view on hedging a FX Forward with a FX Future by just moving the (1) FX_Spot rate and ignore the other risk factors (2) ccy1 DV01 risk, (3) ccy2 DV01 risk, (4) basis swap ...
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1answer
114 views

Some questions on (re-)pricing a forward

A few questions and my answers, to be sure I understand everything Question 1 Suppose A and B agree on a forward contract: maturity $T = 1Y$ spot at $t=0$: $S_0=100$ forward price $K = 120$. ...
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1answer
223 views

Is it possible to hedge Spread Risk on a Forward Swap?

You can enter a forward swap to eliminate interest rate risk, but the spread risk still exists when the swap actually goes into effect. My goal is to convert a floating rate credit facility that will ...
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1answer
142 views

Up-front settlement of forward contract

One has entered a forward contract to purchase oil at $F_{t,T} = S_{t}e^{(r_f + s - c)(T-t)}$. The contract is entered at time $t$ and executed at time $T$. Where: $S_{t}$ is the spot price at time $...
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1answer
2k 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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2answers
975 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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1answer
1k views

Why a Target Redemption Forward cannot be used as hedging instrument?

A Target Redemption Forward (TARF) allows you to buy or sell foreign currency at an agreed “Enhanced Rate” for a number of expiry dates. But why can't a Target Redemption Forward (TARF) be used as a ...
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1answer
74 views

Integrating Interest and Dividend Functions

How are interest rate and dividend functions integrated over time in practice? For example, what does it mean in practice to discount a current price by $e^{\int_{t_m}^{T}r_s ds }$ where $r_s$ is the ...
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0answers
151 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 ...
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1answer
249 views

Stochastic Interest rate spot forward relationship

For a stock that pays no dividends, and has constant interest rates, I know that the relationship can be described with: $F(t) = s(t). e^{r(T-t)}$ F(t) = Forward price, S(t) = Stock price, r = risk ...
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3answers
582 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?
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0answers
109 views

Are futures/forward contracts tradable in the middle of its life? If yes, how?

I think I'm having some trouble understanding what trading futures/forward contracts means. Assuming a market over the period $[0,T]$, for a European contingent claim $X_T$, my naive understanding is ...
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1answer
2k views

T-Forward measure

Ref: https://en.wikipedia.org/wiki/Forward_measure I am trying to understand how to move from risk neutral measure $Q$ to T-Forward measure $Q_T$. It appears we can move from one measure to another ...
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0answers
81 views

Deriving Cox, Ingersoll and Ross expression for the relationship between forwards and futures, how do they conclude a specific step?

I'm trying to derive a specific relationship about the relationship between forwards and futures from "The relationship between forward and futures prices", written 1981 by Cox, Ingersoll and Ross (...
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4answers
6k 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 ...
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0answers
615 views

The effects of “cost of carry” and “convenience yield” in pricing futures and forwards

I understand that time-varying interest rates, “cost of carry” and “convenience yield” will have an effect on forward and futures prices but why would it affect the prices of forwards relative to ...
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2answers
4k 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 ...
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0answers
689 views

Forward price - T-forward martingale

I have a problem figuring out some of the calculations in the book: Fixed Income modelling In the chapter on forwards the author makes an argument that the forward is a martingale under the T-forward ...
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1answer
93 views

Why is the statement “the volatility of a $T - t$-month prepaid forward on asset X is $\sigma$” the same as “the volatility of asset X is $\sigma$”?

I'm self studying and I'm having trouble with understanding the equivalent formulations of the volatility $\sigma$ of an asset $X$, as in the below problem. In the below the problem (and the first ...
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2answers
2k 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, ...
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2answers
1k 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 ...
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1answer
195 views

Characteristic functions for options on futures

Using simple delta-probability decomposition, the price European call options a non- dividend paying asset can be computed as \begin{equation} C(T,K) = {S_0}{\rm{ }}{\Pi _1} - {e^{ - rT}}K{\rm{ }}{\...
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0answers
48 views

References on Pricing commodity forwards

Any good reference on pricing simple forward contracts with source code? Thanks
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1answer
138 views

How to price a forward struck contract today by changing from a $T>T'$ forward measure to $T'$ forward measure at time $t<T'<T$?

Suppose that the payoff of some contract is $V_{T}=S_{T}-S_{T'}$ where $T'<T$ and we want to value the contract at time $t<T'$ (the situation where this arises could be a total return swap, ...
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2answers
306 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 ...
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1answer
260 views

What is the filtration described?

What is the filtration $(\mathfrak{F}_t)$ encircled below? Is it $(\mathfrak{F}_t) = (\sigma(W_t)) = (\sigma(\tilde{W_t})), t \in [0,T]$? Or is it $(\mathfrak{F}_t) = (\sigma(\hat{W_t})), t \in [0,T]...
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1answer
135 views

Zero-coupon Loan Investment [closed]

Zero-coupon default-free interest rates maturing over the next five years are listed below (in percent per annum, continuously-compounded): Maturity Years -- Yield 1 --------------------1.9 2 ------...
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4answers
4k 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 ...
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1answer
606 views

Zero Coupon Bond Forward Price

I'm currently working on the Coursera Financial Engineering and Risk Management course. In one of the questions I was asked to build a binomial pricing model for fixed-income securities. Specifically ...
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2answers
1k views

Monte Carlo Simulation and forward curves

I recently came across a question whether a Monte Carlo simulation should represent a forward curve at each tenor. I encountered an approach at a bank which I would consider as somehow strange. ...
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1answer
87 views

optimize gas storage schedule based on forward prices

I am solving some interviewing questions regarding gas storage optimization. I am given a gas storage facility with volume, rate of injection and withdrawal, as well as a current forward curve of gas ...
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1answer
186 views

Computing Correlation between Forward Rates

I have the feeling this question has an extremely simple answer but I'll put it out to the group anyway. Imagine I have data for 3M and 6M forward rates following a lognormal process, and that I ...