Folder:
115 CFA
File:
115.080.02.03 - Reading 49 - 3. Pricing and Valuation of Forward Contracts

3. Pricing and Valuation of Forward Contracts

c. explain how the value and price of a forward contract are determined at expiration, during the life of the contract, and at initiation;

d. describe monetary and nonmonetary benefits and costs associated with holding the underlying asset and explain how they affect the value and price of a forward contract;

At expiration time T, what is the formulat to derive the value of a forward contract to the long position?
$$V_T(T) = S_T - F_0(T)$$

What is a forward price?
The forward price is the price that a long will pay the short at expiration and expect the short to deliver the asset.


Source:
  • CFA