Forward contracts by Samuel Domian and Andrej Husár MPA1.

Slides:

Advertisements

Similar presentations

Becoming Familiar With Forward Contracts Objectives Explain the two types of contracts List and explain the parts of a contract Understand and explain.

Advertisements

1 CHAPTER 15 Interest Rate Derivative Markets. 2 CHAPTER 15 OVERVIEW This chapter will: A. Describe the plain vanilla interest rate swaps B. Explain the.

Chapter 3 Introduction to Forward Contracts

Forward and Futures. Forward Contracts A forward contract is an agreement to buy or sell an asset at a certain time in the future for a certain price.

 Derivatives are products whose values are derived from one or more, basic underlying variables.  Types of derivatives are many- 1. Forwards 2. Futures.

Chapter 13 Pricing and Valuing Swaps

Interest Rate Swaps and Agreements Chapter 28. Swaps CBs and IBs are major participants  dealers  traders  users regulatory concerns regarding credit.

24-0 Forward Contracts 24.3 A contract where two parties agree on the price of an asset today to be delivered and paid for at some future date Forward.

MBA & MBA – Banking and Finance (Term-IV) Course : Security Analysis and Portfolio Management Unit III: Financial Derivatives.

Futures Contracts Basics Futures prices Margin Accounts Futures and arbitrage Expected Payoffs Hedging.

©2007, The McGraw-Hill Companies, All Rights Reserved 10-1 McGraw-Hill/Irwin Futures Contracts To hedge against the adverse price movements 1.A legal agreement.

© 2008 Pearson Education Canada13.1 Chapter 13 Hedging with Financial Derivatives.

Risk Management in Financial Institutions (II) 1 Risk Management in Financial Institutions (II): Hedging with Financial Derivatives Forwards Futures Options.

金融工程导论讲师：何志刚，倪禾 *

Mechanıcs of future markets

Swap’s Pricing Group 5 Rafael Vides Aminur Roshid Youmbi Etien Kalame.

What is a Derivative? A derivative is an instrument whose value depends on, or is derived from, the value of another asset. Examples: futures, forwards,

Chapter 1 Introduction Options, Futures, and Other Derivatives, 8th Edition, Copyright © John C. Hull 2012.

© 2008 Pearson Education Canada13.1 Chapter 13 Hedging with Financial Derivatives.

Options, Futures, and Other Derivatives, 4th edition © 1999 by John C. Hull 1.1 Introduction Chapter 1.

Options, Futures, and Other Derivatives, 4th edition © 1999 by John C. Hull 1.1 Options, Futures and other Derivatives

Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 1.1 Introduction Chapter 1.

Fundamentals of Futures and Options Markets, 7th Ed, Ch 2, Copyright © John C. Hull 2010 Mechanics of Futures Markets Chapter 2 (All Pages) 1.

Commodity Futures Meaning. Objectives of Commodity Markets.

Ways Derivatives are Used To hedge risks To speculate (take a view on the future direction of the market) To lock in an arbitrage profit To change the.

Forwards : A Primer By A.V. Vedpuriswar. Introduction In many ways, forwards are the simplest and most easy to understand derivatves. A forward contract.

Managing financial risk with derivatives and its applications.

Forward and Futures. Forward Contracts A forward contract is an agreement to buy or sell an asset at a certain time in the future for a certain price.

Paola Lucantoni Financial Market Law and Regulation.

Intermeiate Investments F3031 Futures Markets: Futures and Forwards Futures and forwards can be used for two diverse reasons: –Hedging –Speculation Unlike.

Forward Contract Rashedul Hasan. forward A forward contract or simply a forward is an agreement between two parties to buy or sell an asset at a certain.

0 Forwards, futures swaps and options WORKBOOK By Ramon Rabinovitch.

1 MGT 821/ECON 873 Financial Derivatives Lecture 1 Introduction.

SWAPS Types and Valuation. SWAPS Definition A swap is a contract between two parties to deliver one sum of money against another sum of money at periodic.

Derivatives  Derivative is a financial contract of pre-determined duration, whose value is derived from the value of an underlying asset. It includes.

Repo rate 1. A Namura security dealer, who just purchased 3-month U.S. treasury security at the government weekly auction at $98.65, finances the purchase.

Swap Contracts. Swaps Swap: An agreement between two parties (“counterparties) to exchange a series of cash flows in the future –Essentially a series.

Chapter 4 Currency Derivatives.

Fundamentals of Futures and Options Markets, 8th Ed, Ch 2, Copyright © John C. Hull 2013 Mechanics of Futures Markets Chapter 2 1.

Financial Risk Management of Insurance Enterprises Forward Contracts.

P4 Advanced Investment Appraisal. 2 Section F: Treasury and Advanced Risk Management Techniques F2. The use of financial derivatives to hedge against.

Using Derivatives to Manage Interest Rate Risk. Derivatives A derivative is any instrument or contract that derives its value from another underlying.

Chapter 8 Swaps. © 2013 Pearson Education, Inc., publishing as Prentice Hall. All rights reserved.8-2 Introduction to Swaps A swap is a contract calling.

Derivatives in ALM. Financial Derivatives Swaps Hedge Contracts Forward Rate Agreements Futures Options Caps, Floors and Collars.

1Lec 2 Intro to Futures Markets Lec 2: Intro to Futures Markets (Hull, Ch. 2) Basic Definitions 1. “Cash Market” or “Spot” contract is an agreement (between.

Lecture Presentation Software to accompany Investment Analysis and Portfolio Management Seventh Edition by Frank K. Reilly & Keith C. Brown Chapter.

Introduction Chapter 1 Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright © John C. Hull 2010.

Dr.P.krishnaveni/MBA/Financial Derivatives

Chapter 2 Mechanics of Futures Markets

FINANCIAL DERIVATIVES

Mechanics of Futures Markets

Derivative Markets and Instruments

Futures Markets and Central Counterparties

Futures Contracts Basics Mechanics Commodity Futures

Chapter 30 – Interest Rate Derivatives

Exam FM/2 Review Forwards, futures, & swaps

Chapter 2 Mechanics of Futures Markets

Currency Futures & Option An Exchange Traded Derivative

Financial Market Theory

Using Derivatives to Manage Interest Rate Risk

Currency Forwards.

Chapter 2 Mechanics of Futures Markets

Interest Rate Future Options and Valuation Dmitry Popov FinPricing

Equity Forward and Future Introduction and Valuation

Risk Management with Financial Derivatives

Introduction Chapter 1 Options, Futures, and Other Derivatives, 7th International Edition, Copyright © John C. Hull 2008.

Chapter 2 Futures Markets and Central Counterparties

Futures Contracts Basics Mechanics Commodity Futures

Mechanics of Futures Markets

Presentation transcript:

Forward contracts by Samuel Domian and Andrej Husár MPA1

Explained:  delivery price  forward  forward contract  forward curve  forward price

What is a forward contract?  A forward contract—or forward—is an OTC derivative. In its simplest form, it is a trade that is agreed to at one point in time but will take place at some later time.

Example of a forward contract  Two parties might agree today to exchange 500,000 barrels of crude oil for USD a barrel three months from today.

Variables of a forward contract(1/2)  the underlier,  the notional amount n,  the delivery price k, and  the settlement date on which the underlier and payment will be exchanged.

Variables of a forward contract(2/2)  The party who receives the underlier is said to be long the forward. The other party is short.  At settlement, the forward has a market value given by: n(s – k)

Payoff of a Long or Short Forward  Exhibit 1 Forwards have linear payoffs.  Graphs depict the profit or loss from holding a forward as a function of underlier value at settlement.

Example  Suppose the forward in our oil example were cash- settled. On the settlement date three months from today, no oil would change hands, and there would be no payment of USD 21.04MM. If the spot price at settlement were, say, USD 47.36, then the forward would settle with a single payment of made by the short party to the long party. 500,000(47.36 – 42.08) = USD 2.64MM

Forward prices  Forward prices fluctuate with market conditions. When a forward is entered into, the contract's delivery price is set equal to the quoted forward price. That delivery price then remains fixed until the forward settles

Forward prices(example)  A dealer might quote a three-month oil forward at 41.25/ Those are the bid and offer forward prices. If a counterparty accepts the offer price for 500,000 barrels, then the delivery price on that contract will be USD

Forward curve  a graph of forward prices for different maturities,  forward prices diverge from spot prices, relevant factors vary from one market to the next

Thank you for your attention