# Tag Info

Accepted

### How does a stock becoming hard to borrow affect puts and calls?

As you described, buying a put and selling a call in the hard to borrow stock, you have created a synthetic short future. Like other equity finance positions, the "difficulty to borrow the stock&...
• 6,632

### Forward price confusion

Less quantitative answer: Suppose I want to enter into a contract to buy corn in 6 months. The seller will look at the current price of corn, among other factors, and make an offer for which they are ...
• 1,441

### Forward price confusion

Note that forwards can behave differently in different markets; let's assume we're talking about an equity market and specifically on some stock $S(t)$ paying a continuous dividend of $q$. Also, let's ...
• 605

### Is the Forward Price of a bond subject to the Pull to Par?

No the forward price of a bond on a fixed date does not pull to par. If the forward yield stays the same, so does the forward price. In a scenario where yields donâ€™t move , it is the spot price that ...
• 17.2k

### Substituting the basis swap for the FX forward

It is best to understand this from basic principles. I will construct these instruments in Python's rateslib so that you can also visualise the cashflows and the ...
• 10.5k

### Why does cost of borrow have anything to do with the equity forward price?

If you have an asset you can generally fund it cheaper via repo than you could via an uncollateralized loan; that decreases the cost and thus the forward price.
• 1,040

### Deriving central bank hikes/cuts from a swap curve

Compute the swap rate from 1 cb date to the next, to imply the effective rate (you may need to add subtract a spread I.e. in USD, interbank swaps are traded versus SOFR or FF, if you use SoFR, ...
• 495

### Forward Rate Volatility Calculation - Caps

What you are asking for is called volatility stripping. A cap is a series of consecutive caplets which are call options on forward rates. Caplets are not traded individually on the market so there are ...
• 814

### Implied Distributions from forward prices

You are right: the forward has no information about the future (market inferred) price distribution. In fact, under the risk-free measure, it is just the undiscounted expectation of the price, taking ...
• 855
1 vote

### Convenience yield intuition on consumption assets?

You mention Cost of Carry and Convenience Yield as if they are similar. Actually Cost of Carry and Convenience Yield work in opposite directions. CoC makes the holding of a physical commodity less ...
• 11.4k
1 vote
Accepted

### Connection between the $\sigma$ parameters of the spot price and the forward price

They are not contradictory, if we choose sigmas reasonably (time-dependent, as suggested in the comments). If $$F_t^T = e^{r(T-t)} S_t \; \; {\rm and} \; \; dS_t = rS_tdt + \sigma_t S_t dW_t,$$ with ...
• 5,043
1 vote
Accepted

• 1,008
1 vote
Accepted

### Why must the forward price be equal to the expected value for an underlying security

Strictly speaking the book is not accurate. The forward price is equal to the expected future price only in the risk- neutral world (usually denoted by the pricing measure $Q$). In the real world (...
• 17.2k

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