- Shuffle
Toggle OnToggle Off
- Alphabetize
Toggle OnToggle Off
- Front First
Toggle OnToggle Off
- Both Sides
Toggle OnToggle Off
Front
How to study your flashcards.
Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key
Up/Down arrow keys: Flip the card between the front and back.down keyup key
H key: Show hint (3rd side).h key
PLAY BUTTON
PLAY BUTTON
17 Cards in this Set
- Front
- Back
|
General Concepts:
Fwd Price |
Price of underlying that allows no arbitrage, so they're valued at zero. This is a No Arbitrage Price
|
|
Formula for FP
|
FP = So x (1 x Rf)^T
FP: Forward Price So: Spot Price Compound the Spot at the risk free rate |
|
Day count on zero coupon bonds
|
360
|
|
6m forward on zero-coupon bond, Currently selling for $600 (1000 face), rf =3%, what's the future price?
|
600 x (1.03) ^ 6/12
$608.93 |
|
Vt (value of long position during the life of a contract)
|
Vt = St - (FP / (1 +Rf)^ T-t
|
|
Value of Long position at maturity
|
St - FP
Value of underlying - Forward Price |
|
Formula (another method)
|
You receive St
You pay FP Value t: PV(St) - PV(FP) "spot price - PV of the forward price" |
|
Pricing Equity Forward Contracts (divs complicating feature)
FP: |
(So - PVdivs) x (1+Rf)^t
or... So x (1=Rf)^T -FVD |
|
Pricing equity fwd example:
90d equity fwd Stock @ 60 Rf=3% Div at day 60: 2.00 |
FP: (So - PVdivs) x 1+Rf^t
PVdivs: 2.00 / (1+.03)^60/365 FP: (60-1.9903) x 1.03^90/365 Net investment's Future Value 58.43 is the zero arb fwd price |
|
Value an Equity Forward Contract after initation
|
Vt (long)
(St - PVdivs) - (FP / (1+Rf)^T-t) remember... discount FP by the days LEFT to expiry |
|
Pricing Equity Index Forward Contracts
|
Think continuous dividend, just an offset to the cost of carry
FP: So x e^(Rfc -Rfdiv yldc) x T 5% annual compounded rate ln(1.05) Continuously compounded: 4.879% |
|
Valuing Index Forward Contracts
|
Vt (long) =
(St / e^ dvld(cont) x (T-t) minus (FP / e^Rfc x (T-t) So / e^div yld x time left - FP / re^skfr(cont) x time left |
|
FRAs
1x3 FRA 30d rate 2.4% 90d rate 3.0% |
1+Long
---------- -1 x 360/60 1+Short Longer rate: .03 x 90/360 Shorter rate: .024 x 30/360 1.0075 ----------- -1, then annualize 1.0002 Fwd rate: 3.293% |
|
Valuing a FRA, concepts
|
Long FRA is bullish on rates
Short FRA is bearing on rates FRA is you're Fixed Rate Payer rate, Pay Fixed, Received Floating Paid in arrears |
|
Carrying forward 1x3 FRA, we priced it at 3.3%, notional 1m
10 days in 20d libor: 2.5% (de-ann!) d.00139 80d libor: 3.3% (de-ann!) s.00733 |
Price a new FRA
80d/20d -1 x 60/360 1.00733 / 1.00139 -1: d.00593 ann (60): 3.56 New Rate - Locked in Rate (3.56 - 3.3) x 60/360 x 1m: $433.33! Value at end of b&l period 433.33/ 80d 1.00733 = $430.18!!! |
|
Valuing Currency Forwards:
|
1+RNum^ x/365
So x ______________ 1+RDen^ x/365 |
|
Valuing a Currency Forward Contract:
|
St FP
___________ - ________ (1+Rdem)^T-t (1+Rnum)^T-t |
