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FINANCIAL MARKET COURSES

Forwards & Futures – Pricing

At the heart of derivative pricing lies the concept of a forward price. Forward markets exist for nearly all financial, and many non-financial, assets. This course shows how a 'fair', but essentially unique, forward price can be calculated for most investment assets. It also examines how the assumptions differ when dealing with the forward prices of consumption assets rather than investment assets.

  • OBJECTIVES

    On completion of this course, you will be able to:

    Explain how the concept of arbitrage-free pricing generates unique values used to price futures contracts and forward transactions

    Calculate forward prices for a range of different assets, and identify why a forward price is not always equal to the price of an equivalent futures contract

    Describe the concepts of backwardation and contango

  • COURSE OUTLINE

    Topic 1: Basics of Forward Pricing

    The Law of One Price

    Arbitrage-Free Forward Prices

    Simple Forward Pricing

    Risk-Free Rate of Interest

    Periodic & Continuous Rates

    Forward Prices & Forecast Prices

    Topic 2: Different Forms of Forward Pricing

    Option Terminology

    Option Moneyness

    Option Exercise: Cash vs. Physical Settlement

    Option Styles

    Topic 3: Contango & Backwardation

    Convenience Yield

    Backwardation & Contango

    The Basis

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    75 Minutes

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