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11 Cards in this Set
- Front
- Back
Contango |
=futures price > spot price -> most likely scenario |
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Backwardation |
=futures price < spot price -> will occur if benefits holding assets are large enough |
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Convergence |
As maturity approaches, futures price converges towards spot price (due to no arbitrage) |
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Futures Price vs. Forward Price |
-No arbitrage pricing applies to both -Investors preference for mark-to-market feature could make futures more(/less) valuable than forwards -Value of futures contract reset to 0 at the end of each trading day |
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Equity Forward |
=(S0 - PVDividend) * (1+Rf)^T Step1= FP/(1+Rf)^T=(S0 - PVDividend) Step 2= (S0 - PVDividend)- (FP/(1+Rf)^T)=0 |
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Currency Forward |
=S0 *[((1+Rf quoted)^T)/((1+Rf base)^T)] Step 1= FP/(1+Rf quoted)^T = S0/(1+Rf base)^T Step 2=[S0/(1+Rf base)^T]-[FP/(1+Rf quoted)^T ]=0 |
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Swap spread |
= difference between the fixed rate on an interest rate swap and a Treasury bond of maturity equal to that of the swap |
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Forward Price on Fixed Income Security |
=[bond price *((1+Rf)^T)-FVC] =(bond price-PVC)(1+Rf)^T |
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Discount Factor |
Example LIBOR180 =1/[1+(LIBOR180 rate*(180/360))] |
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PV of fixed payments per notional$ |
=SPF(P1+P2+.....+Pz)+PZ SPF=coupon * 1/payments per year |
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Value to fixed rate payer |
=(PV of floating rate - PV of fixed rate) *notional amount |