Pricing and Valuation of Forward Contracts and for an Underlying with Varying Maturities
Free CFA Level I lesson in Derivatives. 11 min read, ~1,696 words.
Forward price at initiation:, adjusted for carry costs and benefits. Value at initiation = 0. Value during life (long):; value at expiration (long):. The locked-in price must be discounted first. Income (dividends, coupons) lowers the forward price; storage costs raise it. Forward rates come from no-arbitrage between spot rates:, where...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Check Your Understanding
- Exam Shortcuts
Learning objectives
- pricing and valuation of forwards
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