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6

$$F = Spot \times e^{(\text{local interest rate} - \text{foreign interest rate}) \times T}$$ where $Spot$ = AUD per dollars. $T$ is the time to maturity of the contract (in years). So for example if the contract expires in 1 year and a half, $T = 18/12 = 1.5$.

4

Just on nomenclature. You cannot establish fair value but you can use a regression for RV. OLS is perfectly legitimate when done in levels-as long as the series are cointegrated. Now we know that the yield curve is driven by several factors (in the state-space modelling side of econometrics called “stochastic common trends” in levels), the first two of ...

3

As Daneel mentioned in his comment, you can't simply split your expectation of product into a product of two expecations as the two quantities are far from being independent... Now, to answer your question w.r.t. how you could compute the expectation of the joint event of being in the money while having hit the barrier, you were right in using the reflexion ...

2

To answer your answer: Suppose you are the holder of the open contract. You hedge it by executing a vanilla forward at 1.1679 for date 92. You now have an arbitrage, for if the fx forward for one of the dates 88 to 91 becomes higher than that for date 92, you can switch the hedge to that other date, This means that the true price of your open contract ...

1

It is common to observe a term structure of spread when there are bonds with different maturities for the same issuer, or when CDS with different maturities are available for that issuer. For issuers with poor rating the term structure might be decreasing, meaning that conditional upon short term survival the issuer is expected to get better. An ESG that ...

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