I’m struggling with understanding the basic concepts of this - what exactly doe sit mean to have an option on a forward contract? I have the right to enter into a forward contract at X price? Can someone explain this to me with real numbers: Portfolio 1: 1) A call option on the forward contract with an excercise price of X that matures at time T on a forward contract at Ft (???) 2) A pure discount bond that pays X-Ft at time T. WTF?
P +S = X/(1+rf)^t + C Now for a Forward: S=FT/(1+rf)^t swap around P = (X-FT)/(1+rf)^t + C
The only thing that I remember is different is that your “Ft” (which is your “S” in the put-call equation for a “normal” option) is also discounted (in a “normal” question, only “X” is discounted). That’s how I remember the difference, anyways - everything else is exactly the same, so far as I know. *Disclaimer: derivatives kick my phucking arse, so take the above for what it’s worth.
Can you explain the beginning: X-FT what does this mean? In real words?
The basis between the forward strike price and the underlying asset, isn’t it? *Same disclaimer from above applies to this.
skillionaire Wrote: ------------------------------------------------------- > The basis between the forward strike price and the > underlying asset, isn’t it? > > *Same disclaimer from above applies to this. nice way to think of it…thanks cp n sk…i was a bit confused on this …anybody else have any pointers
So X would be excercise price of the option that EXPIRES in T days, vs. the “price” of a forward currency forward contract that EXPIRES in T days.
cpk123 Wrote: ------------------------------------------------------- > P +S = X/(1+rf)^t + C > > Now for a Forward: > S=FT/(1+rf)^t > > swap around > > P = (X-FT)/(1+rf)^t + C hmmmmm copuld we think of it this way the FT replace the stock but must be PV since the trasaction settle at exp of forward unlike the stock where u r long at time 0…comments?
Can someone give an example with REAL numbers? I cannot understand this without real numbers - Schweser has no problems that really test this. Does anybody have the CFAI book next to them - I don’t have mine with me.
cpk123 Wrote: ------------------------------------------------------- > P +S = X/(1+rf)^t + C > > Now for a Forward: > S=FT/(1+rf)^t > > swap around > > P = (X-FT)/(1+rf)^t + C hmmmmm copuld we think of it this way the FT replace the stock but must be PV since the trasaction settle at exp of forward unlike the stock where u r long at time 0 so the P C parity holds…comments?