The value of a long forward contract with no known income and where the risk free rate is compounded on a continuous basis is given by the following equation:
f = S0 – Ke-rT
Where
S0 is the spot price
T is the remaining time to maturity
Archives for Options Pricing
Forward lessons: Derivative pricing: How to calculate the value of a forward contract in Excel
31st January 2012 by agnes under Computational Finance, Derivatives, Example, Middle Office, Misc., Options Pricing, Treasury Products, Treasury Sales
How to calculate the value of a forward contract in Excel
Value of a long forward contract (continuous)
Forward Rate Calculations: Forward Rate Agreements and Forward Foreign Exchange Rates
31st January 2012 by agnes under Computational Finance, Derivatives, Example, Middle Office, Misc., Options Pricing, Treasury Products, Treasury Sales
How to calculate the values of Forward Rate Agreements (FRA)
We are valuing an FRA for someone who is receiving fixed interest rate payments and who is paying floating interest rate payments.
Value of an FRA (zero coupon rate calculated on a discrete basis)
Where, L is the principal amount
RK is the fixed interest rate
More Forward Rates Lessons: How to calculate Forward Rates – Calculations walk through
31st January 2012 by agnes under Computational Finance, Derivatives, Example, Finance course, Interest Rate Modelling, Middle Office, Options Pricing, Treasury Products, Treasury Sales
How to determine Spot Rates and Forward Rates & Yield to Maturity
How to determine Forward Rates from Spot Rates
The relationship between spot and forward rates is given by the following equation:
ft-1, 1=(1+st)t ÷ (1+st-1)t-1 -1
Where
st is the t-period spot rate
ft-1,t is the forward rate applicable for the period (t-1,t)
If the 1-year…
Premium Courses ALM – Crash Course$59.00Monte Carlo Simulator with Historical Returns$199.00Treasury Crash Course - Package$249.99Treasury Crash Course$219.00Computational Finance: Basics: Calculating forward prices in Excel – Part I
30th January 2012 by agnes under Computational Finance, Derivatives, Example, Middle Office, Misc., Options Pricing, Treasury Products, Treasury Sales
How to calculate the forward price of a security in Excel Forward Price of a security with no income
Forward Price of a security with no income is given by the formula S0ert.
For example if S0 , the spot price, of the asset is 100. The time to delivery in the forward contract is 6 months (or 0.5 years) and the annual risk free rate is…
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4th March 2011 by Admin under Options Pricing
Lars Tyge Nielsen provides an interpretation of N(d1) and N(d2) and an explanation behind the difference between them. He does this by considering the value of an European call option on a stock which pays no dividends prior to the expiry date of the option as given by the following formula:
C= SN(d1) – Xe-rtN(d2)
Where C is value of the European call option
S is the current value of the stock…
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Derivatives
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Options, Forwards, Futures: Pricing Interest Rate Swaps
Options and Futures Training: Basic Options Trading Strategies
Derivatives Training: Options Pricing and…
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Options Pricing Training: Interest Rate Options: Pricing Caps and Floors
3rd October 2010 by uzma under Options Pricing
Interest Rate Options Caps and Floors
Here is the second course on Advance Interest Rate Products. The perquisite for this course is the first course on pricing interest rate swaps.
Interest Rate Swaps (IRS) – Pricing Interest Rate Swaps – The valuation course
The second more advance course builds on the foundation laid in the introductory course…
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Binomial Trees
This course focuses on an alternative method of implementing a two-dimensional binomial tree compared to the traditional method of building a binomial tree presented in most option pricing text books. The alternate approach is based on the techniques documented by Professor Mark Broadie at Columbia Business School as part of his coursework in Security Pricing and Computational Finance courses at Columbia University and allows us to extend a…
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Options pricing using Binomial trees – Building an efficient option pricing spreadsheet in Excel
25th September 2010 by uzma under Options Pricing
This course focuses on an alternative method of implementing a two-dimensional binomial tree compared to the traditional method of building a binomial tree in excel presented in most option pricing text books. The alternate approach is based on the techniques documented by Professor Mark Broadie at Columbia Business School as part of his coursework in Security Pricing and Computational Finance courses at Columbia University and allows us to extend…
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25th September 2010 by uzma under Options Pricing
Pricing Down-and-in call options
This is a knock in barrier option. The option comes into existent only after the underlying’s price crosses a certain barrier price, H. The barrier lies below the underlying’s price at inception, hence the “down” in the title above.
Unlike the previous options discussed we cannot simply work backwards down the tree from terminal nodes to inception. This is because the value at any particular node depends on how…
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