Forward contracts in .NET Generator barcode 39 in .NET Forward contracts .net framework bar code

Forward contracts generate, create none none with none projectsdownload barcode control for c# price that will b none none e fair when the exchange takes place on a date in the future Answering this question will be the subject of the rst part of the chapter. An agreement that puts a xed future price on an asset will, as time passes, gain monetary value. In the second part of the chapter, we show how to calculate the value over time of a forward contract.

Finally, we will show how to apply these methods to assets that pay a dividend. First, we clarify the meaning of some terms in the de nition of a forward contract, then we provide a list of some notation used in the chapter and later in the book. The date speci ed in a forward contract for the exchange of the asset and cash is called the maturity of the contract.

The time that must elapse before maturity is called the duration or the time to maturity of the contract. When no date is speci ed, we write T to represent the time at maturity. If the contract is entered today (t = 0), the time to maturity is T years.

If the contract is entered at time t, the time to maturity is T t years. Delivery price (K) The money handed over, at maturity, in exchange for the asset is called the delivery price. We will denote this by K.

The delivery price is xed on the day the contract is set up. The value K will not change during the life of the contract. Spot price (S0 ) The value of the asset today is S0 .

This is called the spot price (S0 for SpOt). The value of the asset at time t is St . The value of the asset at maturity is ST .

Interest rate (R) We will assume that the interest rate R is constant throughout the contract. Since most contracts are of a shortish duration, this is not too severe a restriction. As usual, the annual rate will be written as r R = 100 .

A person who enters a forward contract to buy the asset is said to be entering a long forward contract. A person who enters the forward contract to sell the asset is said to be entering a short forward contract. So, in the nancial world, going long means you buy; going short means you are selling.

Portfolio A portfolio is a collection of assets. Some of the assets might be commodities (wheat, sugar, gold), some might be securities (shares in Abbey National, bonds) and some might be cash (pounds, dollars, rubles). The value of the portfolio will change with time.

We shall write: V0 = value of a portfolio today (t = 0) VT = value of a portfolio at time T. Our pricing strategy will invoke the no arbitrage principle..

QR Codes Notation Maturity (T). Financial Products Recall that this says that there cannot exist a portfolio having the property: V0 = 0 and VT 0 for all possible market outcomes VT > 0 for at least one possible market outcome. To recap: a six-month long forward contract on 1000 BT shares with delivery price 2.50 per share means that you are contracting to buy 1000 BT shares for 2500 in six months time.

No money is paid today. The contract, initially, has zero value. At maturity, you hand over the delivery price ( 2500) in exchange for the 1000 shares.

. 2.2 To calculate none none the delivery price (on an asset that does not pay any dividends). In a forward cont ract, the asset and the maturity are determined largely by external conditions. (What do you want to buy or sell When do you need it When can you sell it ) It is the delivery price that is of real interest and we shall require the delivery price to satisfy two conditions: (i) The delivery price must be set to preclude the possibility of any arbitrage opportunities. (ii) The delivery price must re ect current market conditions and must be, demonstrably, the right price for the asset at maturity.

To calculate a delivery price satisfying these conditions, we establish a portfolio (V). This portfolio will consist of some cash, the asset, and a forward contract. The portfolio will be set up so that initially (at t = 0) the value of the portfolio will be zero (V0 = 0).

The portfolio will be designed so that its value at maturity will be independent of the value of the asset. So VT will be dependent only on T and, by the Useful Remark in section 1.4, to avoid arbitrage, we must have VT = 0.

This condition will force out an arbitrage-free, market-sensitive value for the delivery price. We illustrate the method for Example A given at the beginning of the chapter..

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