Forward contract

Forwards are unconditional, non-exchange traded contracts and as such belong to the group of derivatives.

• 3.1 Results of Free -storable good
• 3.2 Example

Background

Forwards are virtually the exchange traded counterpart to futures which are exchange-traded and standardized. In contrast to spot transactions in which follow undertaking (eg purchase / sale of a share) settlement (delivery ) directly to each other, is the fulfillment of contracts in the future ( " Appointment "). Unlike options in which one party is responsible for an option to exercise the transaction need not necessarily be executed, forwards are always met as unconditional forward transactions on the due date. Futures differ from forwards in that they are exchange- traded. The non-standardized forward contracts for the parties compared to futures higher flexibility, but also generally less liquid.

Forwards can be distinguished according to the type of traded goods ( the so-called underlying) and after the manner of settlement. After the base value of a hand forwards can be distinguished on goods ( eg agricultural products) and financial instruments (eg stocks, forex ). On the other hand, one can holding the underlying storable ( most financial instruments) and can not be stored (eg, electricity ) are different.

The main traded on financial markets forwards are foreign exchange forwards and forwards on interest ( FRA, Forward Rate Agreement ).

In terms of performance on the one hand different payment and delivery and on the other hand, the cash settlement.

Fulfillment by payment and delivery

For payment and delivery ( engl. "physical delivery" ) of the underlying is actually delivered against payment of the agreed forward price to the buyer. Particularly in the case, for example, are not freely convertible can here be restrictions that limit the possibilities of such a transaction.

Cash settlement

In cash settlement (English " cash settlement " ) will take place at maturity a payment that equals the difference between the agreed forward price and the current spot price at maturity of the underlying commodities. This variant is (eg for equity indices or not freely tradable currencies) in particular to underlying assets of importance that are not or only partially available.

Value and Price

Inscribed:   the present time,   the time of exercise;   the market value of the underlying asset in t,   the market value of the underlying asset in T,   the strike price,   the continuous interest rate (duration 1 year) The value of the forward in t, with strike price K and maturity T is determined by: The price of the forwards in t is determined by: The price of the forwards in is determined so that the value of the forward is zero in: By: so true: . The value of the forward contracts in T is then of course: survey

Futures

Income Free storable Good

The idea of ​​the Arbitrage Pricing Theory in contracts is the comparison between two strategies:

• Either you buy the underlying asset by borrowing at today's spot rate and stores it
• Or today we agreed a forward contract.

None of the two strategies may be advantageous over the other.

Although the forward contract has at the conclusion of no value, but a price. This is dependent on the cost of the support material. The costs arising from the comparison of the two strategies. Holding costs can include interest costs of loans, or from depot and storage costs.

This corresponds spot price the cost of carry.

Result

Holding costs are always positive and the underlying generates no income. So it 's not worth it to keep the goods; Thus, the forward price is greater than the spot price.

The above formula can be inferred that the forward price increases with

• Longer appointment period
• Higher interest rates
• Higher absolute spot rate

This corresponds to the holding cost less holding gains (in this case zero).

The difference between the forward price and the spot price is called basis. She is always positive in nonperforming storable goods and corresponds to the holding costs.

Example

An index is a tradable storable Good without holding gains or holding costs. However, if the bond index returns a holding, the result is the value minus the retention rate of return.

Dividend Forwards

The price of a forward contract with dividend payments during the term can be determined using the following Duplikationsportfolios:

Step 1 Determination of the implied forward interest rate. About this can be by means of the one period interest rate, the interest rate in t = 3 calculate. What remains is the interest rate structure in t = 2

Forward Forward

With a Forward Forward is a forward transaction at a time s and its repayment with interest at a time t. In this way, the borrower can secure the interest in the completion point.

The evaluation takes place by means of the comparison of a hedged item with a nichtabgesicherten position.