3.20.2005

Q: If a forward contract is an obligation...

...as opposed to a right, to buy/sell, can one get out of it prior to expiration?

CppQuant Answer

Not directly. One could, however, enter into an opposite transaction with the same or a different counterparty (with additonal credit risk). For example, if a party goes long in the original transaction, he can terminate his long position by going short in the new forward contract. aka offsetting.

Other things to know about forwards

  • no money changes hands at the start.
  • mostly cash settled (ie. index forwards), as opposed to physical delivery.
  • common types include Equity forward (contract prices and values must take into account the fact that the underlying stock, portfolio, or index could pay dividends), bond forwards, currency forward (manage foreign exchange risk), and interest rate forwards (ie FRA).

Category: C++ Quant > Derivatives > Forward

Elsewhere on BlogSpot

uggabugga
KUDLOW S MONEY POLITIC$ - ... just an awareness of the realities of portfolio management... which can get the best prices for transactions and portfolio management...

results matter
SKIMBLE - We don t bother with those, says Steven R. Brown, portfolio manager for Lehman Brothers Inc. s Neuberger Berman Real Estate Fund...

Setting Up a Project Management Office
PROJECTSTEPS - Advanced Project Portfolio Management and the PMO Multiplying ROI at Warp Speed Gerald I Kendall, PMP and Steven C. Rollins, PMP ...

October 2004 News and Information for Intellectual...
I/P UPDATES - Free Telephone Seminar Today: Patent Portfolio Management. October 28, 2004 ... Advanced Patent Prosecution: Portfolio Management ...

09/01/2002 09/07/2002
BONOBO LAND - ... the Japanese government doesn t have many cards left up its sleeve, said Hiroshi Nishiyama, senior portfolio manager at SG Yamaichi...

No comments:

Post a Comment