Hi. is there anyone who could help me out with this? How to calculate this one?

- Six months ago an investor opened a short position on the 12-month forward contract on a non-dividend paying stock index that was then worth 2000. The same asset is now worth 1800. Now the term structure of the short interest rates is exactly like indicated by the forward rates six months ago. The 6-month spot rate was then 3% p.a, whereas the corresponding spot rate for the 12-month maturity was 2% p.a, respectively. What is the value of the forward contract for the investor now?

Thank you!

that you have provided enough information. Is a cross currency spread in play? Is there a change in implied volatility? I'm not getting the context. What contract trades where there is no pricing available...why just not look at the statement? Why not just look at the bid?

Sorry I'm not understanding.

A major difference in non-cleared and cleared products is cash flow. While futures are margined every single day, OTC non-cleared contracts are only settled at expiry. The way to evaluate this is to discount the expected forward cash flow. Note this doesn't change the forward price of an asset just the cashflow of your transaction. So if you 200 points in the money on an OTC non-cleared asset, with 6 months to expiry and a 3% interest rate, that 200 points is only worth 200/(1.03^0.5) or about 197 today.

wldman 

that you have provided enough information. Is a cross currency spread in play? Is there a change in implied volatility? I'm not getting the context. What contract trades where there is no pricing available...why just not look at the statement? Why not just look at the bid? Sorry I'm not understanding.

Yes. That is the whole question. I would be thankfull if someone could provide me a way to calculate this one

Thank you

You would probably get better responses if you attempt to solve the problem yourself first, and post your calculations. That way, people can see the specific parts of the problem you are having trouble with. Just asking "please do my homework for me" doesn't add a lot of value to the discussion.

$1830.

Matt Z
Optimus Futures

There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.