when is future > forward

CFA Level II
#1

I know when rates and asset values are negatively correlated , forward are more valuable, such as treasury. then when is future more valuable then forward. e.g. which type of asset are rates and asset values positively correlated ?

#2

I think when there is a negative correlation the future would be more valueable since your marking to market.

#3

monki Wrote: ------------------------------------------------------- > I know when rates and asset values are negatively > correlated , forward are more valuable, such as > treasury. then when is future more valuable then > forward. e.g. which type of asset are rates and > asset values positively correlated ? A long interest rate future?

#4

Probably nothing as direct as that, but something like copper which is usually in demand during economic expansions which is also when interste rates are up.

#5

chrismaths Wrote: ------------------------------------------------------- > monki Wrote: > -------------------------------------------------- > ----- > > I know when rates and asset values are > negatively > > correlated , forward are more valuable, such as > > treasury. then when is future more valuable > then > > forward. e.g. which type of asset are rates and > > asset values positively correlated ? > > A long interest rate future? Except they are priced like bonds.

#6

^^ deep 2002 1st comment - incorrect when interest rates and underlying asset prices are positively correlated - Futures are more valuable. This is because you get higher reinvestment gains and lower borrowing costs …

#7

can’t think of an example though…

#8

I wasn’t sure on that, thanks for correcting me. So forwards are more valuable when rates are negatively correlated with the asset since lower rates mean lower reinvestment rates for future but your locked in with a forward contract?

#9

How about this: http://www.kitcocasey.com/displayArticle.php?id=843 Gold looking good.

#10

commodities will be gud example for this i guess…