Actuarial Outpost
 
Go Back   Actuarial Outpost > Exams - Please Limit Discussion to Exam-Related Topics > SoA/CAS Preliminary Exams > Investment / Financial Markets
FlashChat Actuarial Discussion Preliminary Exams CAS/SOA Exams Cyberchat Around the World Suggestions

DW Simpson International Actuarial Jobs
Canada  Asia  Australia  Bermuda  Latin America  Europe


Investment / Financial Markets Old Exam MFE Forum

Reply
 
Thread Tools Search this Thread Display Modes
  #1  
Old 09-28-2017, 11:36 AM
thirteenthgrave thirteenthgrave is offline
SOA
 
Join Date: Aug 2017
Posts: 19
Default Analyzing Forward Contracts

Hi All,

For options, we can use put-call parity to fully account for all cash flows and risky positions. Is there a similar framework for forwards? I never entirely understood what it is.

Thanks!

Last edited by thirteenthgrave; 09-28-2017 at 11:43 AM..
Reply With Quote
  #2  
Old 09-28-2017, 03:28 PM
ARodOmaha ARodOmaha is offline
Member
SOA
 
Join Date: May 2016
Location: Omaha, NE
College: University of Nebraska (alma mater)
Favorite beer: Captain Morgan
Posts: 207
Default

What kind of relationship are you looking for?

A synthetic long forward is comprised of a long call and short put. A synthetic short forward is a made up of a short call and long put. The payoffs of a long forward and short forward will cancel. The profits of long forwards and short forwards will cancel. And put-call-parity uses the prepaid forward of a stock.
__________________
P FM MLC MFE C PA FAP APC
Reply With Quote
  #3  
Old 09-28-2017, 04:09 PM
Academic Actuary Academic Actuary is offline
Member
 
Join Date: Sep 2009
Posts: 9,035
Default

A simpler synthetic forward is to borrow the discounted forward price and buy the asset.
Reply With Quote
  #4  
Old 09-28-2017, 11:02 PM
ARodOmaha ARodOmaha is offline
Member
SOA
 
Join Date: May 2016
Location: Omaha, NE
College: University of Nebraska (alma mater)
Favorite beer: Captain Morgan
Posts: 207
Default

Quote:
Originally Posted by Academic Actuary View Post
A simpler synthetic forward is to borrow the discounted forward price and buy the asset.
Not sure how two things are simpler than two things. But to each their own. Also, that would be a fully leveraged purchase.
__________________
P FM MLC MFE C PA FAP APC
Reply With Quote
  #5  
Old 09-28-2017, 11:12 PM
Academic Actuary Academic Actuary is offline
Member
 
Join Date: Sep 2009
Posts: 9,035
Default

Quote:
Originally Posted by ARodOmaha View Post
Not sure how two things are simpler than two things. But to each their own. Also, that would be a fully leveraged purchase.
Well for one the options corresponding to the date of maturity of the forward might not exist.
Reply With Quote
  #6  
Old 09-29-2017, 12:56 AM
thirteenthgrave thirteenthgrave is offline
SOA
 
Join Date: Aug 2017
Posts: 19
Default

Thank you people .... I think either equivalence works fine.
Reply With Quote
Reply

Tags
forward, mfe

Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off


All times are GMT -4. The time now is 04:56 AM.


Powered by vBulletin®
Copyright ©2000 - 2019, Jelsoft Enterprises Ltd.
*PLEASE NOTE: Posts are not checked for accuracy, and do not
represent the views of the Actuarial Outpost or its sponsors.
Page generated in 0.17730 seconds with 11 queries