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4 Cards in this Set
- Front
- Back
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forward contract
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The price of a forward contract is the price of the underlying asset that the long will pay to the short at settlement (for a deliverable contract). The value of a forward contract comes from the difference between the forward contract price and the market price for the underlying asset. This difference between price and value is a key concept to understand. A forward contract has only one price, which applies to both the long and to the short.
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convenience yield
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e return from the non-monetary benefits of holding the asset underlying a futures contract
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futures contract
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The value of a futures contract is zero when the account is marked-to-market and there is no margin call. The price of the contract is adjusted to the new 'no-arbitrage'value, which is theoretically the same as the settle price at the end of trading, as long as price change limits have not been reached. Note that this is different from a forward contract. With a forward contract, the forward price is fixed for the life of the contract so the contract may accumulate either a positive or negative value as the forward price for new contracts changes over the life of the contract.
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payoff |
Payoff = notional amount × (floor rate − six-month LIBOR) / 2
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