This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: • They are bilateral contracts and hence exposed to counter-party risk. • Each contract is custom designed, and hence is unique in terms of contract size, expiration date and the asset type and quality. • The contract price is generally not available in public domain. • On the expiration date, the contract has to be settled by delivery of the asset. • If the party wishes to reverse the contract, it has to compulsorily go to the same counter-party, which often results in high prices being charged. Advantages: 5/30/11 FORWARDS The value of a forward position at maturity depends on the relationship between the delivery price ( K ) and the underlying price ( ST ) at that time. • For a long position this payoff is: fT = ST − K • For a short position, it is: fT = K − ST...
View Full Document
- Spring '11
- Trigraph, PR ICE, cont r act