Derivatives Flashcards
Value at Expiration of a Forward Contract
V(0,T) = ST - F(0,T)
Off-Market FRA
A contract in which the initial value is intentionally set at a nonzero value.
Present Value of Dividends
PV(D,0,T) = (sum of) D/(1 + r)^t
Interest Rate Parity
Expresses the equivalence, or parity, of spot and forward exchange rates, after adjusting for differences in interest rates in two countries.
Fungible
Any futures contract with any counterparty can be offset by an equivalent futures contract with another counterparty.
Futures Price of a Treasury
Nominal Amount [(1 - Rate)(Days/360]
Futures Price
f(T) = S(1 + r)^T
Through the forces of arbitrage, the futures price is the spot price compounded at the risk-free rate.
Futures Price with Storage Costs
f(T) = S(1 + r)^T + FV(SC,0,T)
Futures Price with Cash Flows
f(T) = S(1 + r)^T - FV(CF,0,T)
Convenience Yield
The nonmonetary return offered by an asset when in short supply. Nonmonetary benefits of an asset.
Cost of Carry
FV(CB,0,T) = Costs of Storage - Nonmonetary Benefits(aka: Convenience Yield)
Expected Spot Price
S = [S(T) - FV(CB,0,T)]/(1 + r)^T