{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}


Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
EC3070 FINANCIAL DERIVATIVES MARKING TO MARKET Imagine a futures contract that has been written at time t = 0, which obliges a party to supply an asset or a commodity at time τ for a settlement price of F τ | 0 . This party, which takes the short position, might currently own the asset or they might be in the process of producing a commodity to bring to market at a future date. Then, their purpose in holding the contract would be to guarantee a price for their product. Alternatively, the contract holder might be a speculator with no essential interest in the underlying asset. In any case, the contract holder will be required to deposit with the bro- kers a sum of money described as the margin, which will be calculated at a percentage of the current spot price S 0 of the asset. At the end of each day of trading on the futures exchange, the margin will be adjusted to reflect the gains or losses of the contract holder. Should the cumulated losses reduce the margin
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Ask a homework question - tutors are online