Right so formula is S0 x e(RS)t where S is div yield. So I have in my notes written that R = ln(1+Rf) and S = 1/t x ln(1+S) So you always do this conversion before putting it in the first formula??
Ln(1+rf) is just to get a continuous interest rate. You dont need it if its given. You would also need to subtract dividends
div are subtracted by * e^(-divrate*T) I believe…
e^(rfc - rdc) * T is the right formula rfc = ln(1+rf) and rdc = ln(1+rd)
make sure you are comping continuous rates to continuous rates. use ln (1+rate) to make it continuous. Then the forward price is: spot*e^(rfr-div yield)(days/365)
cpk123 Wrote: ------------------------------------------------------- > e^(rfc - rdc) * T > > is the right formula > > rfc = ln(1+rf) > and rdc = ln(1+rd) Sorry that’s what I meant but the only question I have is I have rdc = 1/T x ln(1+rd) in my notes. It came from some question somewhere are you sure it’s ln(1+rd)???
mambovipi Wrote: ------------------------------------------------------- > cpk123 Wrote: > -------------------------------------------------- > ----- > > e^(rfc - rdc) * T > > > > is the right formula > > > > rfc = ln(1+rf) > > and rdc = ln(1+rd) > > > Sorry that’s what I meant but the only question I > have is I have rdc = 1/T x ln(1+rd) in my notes. > It came from some question somewhere are you sure > it’s ln(1+rd)??? yes
okay thanks
CP, i thought it was e^(rdc - rfc) * T
jmac thats a currency future, were talkin index above
agreed…I was referring to CPK’s post. Or am i still off?
i think you are getting confused on CPKs use of “rdc” I think he means rate of dividend yield continuously compounded and you are thinking interest rate of domestic currecny.
ahhh. thanks.