Forward Commitments: Pricing, Valuation, and Applications
Free CFA Level II lesson in Derivatives. 14 min read, ~2,157 words.
Forward price = cost of buying and holding the underlying until delivery. Deviations = arbitrage. Equity forward with discrete dividends: Forward = (S - PV(dividends)) x e^(rT). Always present-value the dividends. FRA settlement includes a denominator: Payment / (1 + Floating x DCF). Omitting it gives the undiscounted answer, a...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Key Takeaways
- Exam Shortcuts
Learning objectives
- forward commitments
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