CHAPTER 6
Forwards and Futures Valuation
Interest rate futures will be described in Chapter 13. This chapter develops basic valuation concepts. The discussion is adapted, with permission, from section 2.2 of Rubinstein (1999).
Forwards and Futures
A forward is a contract between two parties in which one agrees to purchase from the other a specified asset at a specified price for delivery at a specified future date. The following discussion refers to these variables:
P = the current price of the underlying asset, also known as the spot price
PT = the spot price of the underlying asset at the time of delivery
X = the delivery price specified in the forward contract
T = the term to maturity of the contract, in years, also referred to as the time ...
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