When we mark to market for Forward contract, we would calculate as:
=> (Ft - F0) / (1+Rf)T-t
When marking to market for Future contract, we calculate as:
=> Current future price - Previous settlement price
Therefore, why is marking to market for Future contract not discounted back as Forward contract? What is the difference?
This is a tricky one… my answer is, who cares… you’re going way to deep! You know how to calculate the value of a forward and the value of a futures PV and its more than enough to crack derivaties in L3.
Here’s some prior discussion on the topic:
https://www.analystforum.com/forums/cfa-forums/cfa-level-ii-forum/91331059
https://www.analystforum.com/forums/cfa-forums/cfa-level-ii-forum/91322366
My hunch is that the futures price is a PV price which you can execute on the exchange immediately. So if you have 5 contracts at X value, and you can sell back 5 contracts at X value, thats that.
Yeah, you’re def right! It just got me thinking about it.