Derivatives focus Flashcards
Fwd committments
Forward Pricing model
Value of long position in Fwd contract @:
- initiation
- During life
- at experation
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Contingent claims
What is put-call parity?
What is a synthetic call and put?
Fwd commitments
Cost of Carry model
Cost-of-Carry Model
The general form for the calculation of the forward contract price can be stated as follows:
Equity Forward Contracts With Discrete Dividends
Recall that the no-arbitrage forward price in our earlier example was calculated for an asset with no periodic payments. A stock, a stock portfolio, or an equity index may have expected dividend payments over the life of the contract. In order to price such a contract, we must either adjust the spot price for the present value of the expected dividends (PVD) over the life of the contract or adjust the forward price for the future value of the dividends (FVD) over the life of the contract. The no-arbitrage price of an equity forward contract in either case is:
