Note Market Risk Section II.2.B - Determination of Forward & Future Prices

[ykho22]

Hi David,

Couple of items that you may want to review.

1) While reviewing the notes on P.23/166, the formula on the top of the page f=(F0 - K)e^ (-rT) is missing the negative (-5%)in discounting the forward contract value.

2) Normal Backwardation vs Backwardation P25/166. Normal backwardation is when the future price is lower than the expected future spot price. I think you have the interpretation correct on P24/166 but the idea went opposite in P25/166.

Let me know if I have interpreted incorrectly.

Thanks,
Peach

 

[David Harper CFA FRM]

Hi Peach,

You are correct on both, both are errors. Thank you for spotting - David

 

[ykho22]

Thanks David.