- seller) to be paid at predetermined date in the future.
At the inception of a forward contract, the forward price makes the value of the contract zero.
The Forward Price can be determined by the following formula:
S0 represents the current spot price of the asset
F0 represents the forward price of the asset at time T
er represents a mathematical exponential function
Taking positions in a forward contract is a zero-sum game. For example, if Joe takes a long position in a pork belly forward agreement and Jane takes a short position in a forward agreement, any gains that Joe makes in the long position equal the losses that Jane incurs from the short position. By initially setting the value of the contract's value to zero, both parties are on equal ground at inception of the contract.
Investment dictionary. Academic. 2012.
Look at other dictionaries:
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