Formulae W1-W4 Flashcards
What is the forward price or futures price?
F
What does S represent?
Current spot price of the underlying asset.
What does r represent?
Risk-free interest rate for the time period T, typically annualized.
What does T represent?
Time to maturity of the forward or futures contract, expressed in years.
What does I represent?
Present value of any income (e.g., dividends) the asset will generate during the contract’s life.
What does U represent?
Storage costs (for commodities) over the life of the forward or futures contract.
What does Y represent?
Income generated by the commodity (e.g., a convenience yield).
What does q represent?
Continuous income yield (e.g., dividend yield).
What is F_T?
Forward price for a currency forward contract.
What does r_f,T represent?
Foreign interest rate applicable to the foreign currency in a currency forward.
What does V_1 represent?
Value of the portfolio at maturity.
What does F_1 represent?
Futures price at maturity or at a future point.
What does S_1 represent?
Spot price at maturity or at a future point.
What does Π represent?
Profit from a hedged position.
What does b represent?
Basis, the difference between spot price and futures price (b = S - F).
What does b_1 represent?
Basis at a future point (b_1 = S_1 - F_1).
What does N_F represent?
Number of futures contracts required for the hedge.
What does V_S represent?
Value of the spot position being hedged.
What does V_F represent?
Value of one futures contract.
What does Cov(R_S, R_F) represent?
Covariance between the returns of the spot asset (R_S) and the futures (R_F).
What does σ_F^2 represent?
Variance of the futures returns (R_F).
