Forward Commitments: Pricing, Valuation, and Applications
Free CFA Level II lesson in Derivatives. 15 min read, ~2,305 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). Continuous yields instead reduce the rate in the exponent. Value to the long after initiation = adjusted spot - PV(forward price). Discount F...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Check Your Understanding
- Exam Shortcuts
Learning objectives
- forward commitments
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