FORWARD - EC3070 FINANCIAL DERIVATIVES FORWARD CONTRACTS In...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon

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

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

Unformatted text preview: EC3070 FINANCIAL DERIVATIVES FORWARD CONTRACTS In a forward contract, a party agrees to buy or sell an asset at a given price at a future date . The party that agrees to buy the asset, is taking a long position. The party that is selling is taking a short position. The spot price S is the price in the open market of the asset of time . The delivery price K is the price agree in the forward contract for the transaction that is to be enacted at time , when the money is paid and the delivery is taken. The forward price F | t is the price prevailing at time t for a delivery that is scheduled for time . When the contract is written, the delivery price is the prevailing forward. We denote this by writing K = F | t . After time t , the forward price and the delivery price may diverge. The returns to the party taking the short position in the forward contract is K S . The party taking the short position is paid a sum of K at time and they relinquish an asset that is valued at S on the open market at that time. Theon the open market at that time....
View Full Document

Page1 / 2

FORWARD - EC3070 FINANCIAL DERIVATIVES FORWARD CONTRACTS In...

This preview shows document pages 1 - 2. Sign up to view the full document.

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