FBE459_1_1_Forwards_Futures

FBE459_1_1_Forwards_Futures - Lecture Outline: FBE 459...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
1 FBE 459 – Financial Derivatives Prof. Pedro Matos Lecture 1.1: Introduction to Futures and Forwards Forwards and futures contracts • Forwards and futures contracts • Marking-to-Market • Institutional Aspects Readings: HULL chapter 2 - Forward Contracts - Futures Contracts . Types . Trading on Margin Lecture Outline: 2 . Marking-to-Market . Reading the WSJ - Forward vs Futures Contracts In the News … 3 In the News … 4
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 Forward Contracts Forward contract : buyer and seller agree upon the delivery of a specified quantity and quality of an asset at a future date for a given price. Contract agreed today (t=0)… For future date (t=T)… 5 Terms and conditions: - Price (F 0 ) - Quantity & Quality of asset - Settlement date (T) - Location for delivery On settlement: - Delivery of asset - Payment of F 0 Forward Contracts At t = 0, … when the contract is agreed upon the forward price (F 0 ) is set such that the contract has zero value (i.e. it is a fair price for both parties) 6 Before maturity t<T, … contract value can start having negative value for one party (and positive for the other) but it is binding and non- negotiable Forward Contracts At maturity (t=T): … for Long position : obligation to buy asset (now worth S T ) and pay F 0 , so Payoff = S T –F 0 7 … for Short position : obligation to sell and receive F 0 , so Payoff = F 0 –S T Forward Contracts Example: 8
Background image of page 2
3 Forward Contracts Long position Short position $ Gains/Losses Contract Payoff at Maturity (T): 9 It is a zero-sum game between both parties S T F Futures Contracts Futures contract
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 7

FBE459_1_1_Forwards_Futures - Lecture Outline: FBE 459...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online