Ladder options are options where the strike is reset whenever the price of the underlying asset reaches certain trigger levels or rungs during the tenor of the option. When the next strike or rung of the ladder option is triggered the profit between the old and new rungs/ strike prices are locked in. The rungs [...]
How to calculate the value of a forward contract in Excel
Value of a long forward contract (continuous)
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 [...]
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
RF is the forward interest rate [...]
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 formulap 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 [...]
In our Derivatives Crash Course for Dummies, Master Class: Options and Derivatives Crash Course: Session Five: Synthetics we had discussed how we can synthetically create a derivative product by combining two vanilla contracts. We had presented the payoff profile of a synthetic long forward contract created by combining a long call and a short put [...]
To summarize, the principle objective of estimating the amount at risk in each of these transactions is to determine how the transaction should be structured and what would be the impact of the structure on cost both out of pocket and explicit cost as well as implicit cost and what is the long range impact on the customer’s portfolio and profile of the structure that you have suggested.
On the other hand N(d1) will always be greater than N(d2) because in linking it with the contingent receipt of stock in the Black Scholes equation, N(d1) must not only account for the probability of exercise as given by N(d2) but must also account for the fact that exercise or rather receipt of stock on exercise is dependent on future value
How much do you know about finance? Test yourself with the quizzes available on Basic Derivatives Products & Terminology.
How much do you know about finance? Test yourself with the quizzes available on Basic Derivatives Products & Terminology.
How much do you know about finance? Test yourself with the quizzes available on Basic Derivatives Products & Terminology.
