Term
FORWARDS:
Basic forwards (no arbitrage pricing) formulas:
(1) Forward Price
(2) Value to long during life
(3) At expiration |
|
Definition
(1) FP = S0*(1+Rf)t
(2) V(long) = St - [FP/(1+Rf)t]
(3) St - FP |
|
|
Term
FORWARDS:
Forward contract on a stock:
(1) FP
(2) Value to long |
|
Definition
FP(equity) = (S0 - PVD)*(1+Rf)t
V(long) = [St - PVDt] - [FP / (1+Rf)t] |
|
|
Term
FORWARDS:
Forward contract on an equity index:
(1) FP
(2) V(long) |
|
Definition
FP = S0*e(Rf - DY)*t
V(long) = [St / eDY*t] - [FP / eRf*t] |
|
|
Term
FORWARDS:
Forward on fixed income securities
(1) FP
(2) Value to long |
|
Definition
FP = (S0 - PVC)*(1+Rf)t
V(long) = (St - PVC) - [FP / (1+Rf)t]
PV of coupon payment = Coupon / (1 + RFR)t/365
t = time until coupon payment |
|
|
Term
FORWARDS:
Currency forwards
(1) No-arbitrage forward price
(2) V(long) |
|
Definition
FT = S0*e(R(DC)-R(FC))*t
Vt = [St / (1+RF)t] - [Ft / (1+RD)t] |
|
|
Term
FUTURES:
No-arbitrage price of a futures contract
(asset with no storage costs/cash flows) |
|
Definition
|
|
Term
FUTURES:
(1) Futures price (asset w/ holding costs)
(2) Futures price (asset w/ nonmonetary benefits) |
|
Definition
(1) FP = S0*(1+Rf)t + FV(net costs of holding asset)
(2) FP = S0*(1+Rf)t - FV(convenience yield; net benefits from holding assets and having use of them) |
|
|
Term
FUTURES:
Price of a Treasury bond future (2-step) |
|
Definition
FP (T-bond)=
Treasury Bond Futures Price: f0(T) = [S0 - PVC)](1+r)T
Treasury Bond Futures Price: f0(T) = S0(1+r)T – FV(CF)
Treasury Bond Price =Futures Price (CTD)/Conversion factor |
|
|
Term
FUTURES:
Price of an equity index future with:
(1) discrete annual dividend rate
(2) continuously compounded rate |
|
Definition
(1) FP(Index): S0/[(1+d)t] * [1+rf]t
(2) FP(Index): S0e(R(f)-d)*t) |
|
|
Term
FUTURES:
Price of a currency future
+in continuous time |
|
Definition
FP(Index) = [S0 / (1+rforeign)t] * (1+r)t
In continuous time:
FP(Index) = S0e(Rf-R(foreign))*t |
|
|
Term
FUTURES:
Equity Futures:
Futures price of a stock |
|
Definition
|
|
