Talk:Forward price
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[edit] Merger
It has been up for merger for about a year now. The general discussion has leaned towards keeping them seperate, so I am going to just go ahead and remove the tags. -Warhorus 07:15, 25 December 2006 (UTC)
[edit] Price vs. rate
I just completed a course in International Currency Markets and have been planning to edit articles for forward rate and spot rate, but it appears the topic is also being covered in forward price and spot price. The "rate" part is used for currencies obviously because the price must be given as a fraction, but that does not appear so for commodities (my knowledge of commodities is very limited). So, my question is, do any of you think it would be appropriate to include forward rate in with forward price, along with the same for spot? My lack of formal knowledge in commodities is giving me pause, especially because the "proof of the forward price formula" sounds fishy to my currency market ear. --Slac 01:44, 18 May 2005 (UTC)
- With respect to spots and forwards, "price" and "rate" generally mean the same thing. Sometimes, "spot/forward rate" is used specifically to refer to "spot/forward exchange rate," but often "price" and "rate" are synonymous. —Lowellian (reply) 07:09, 17 April 2006 (UTC)
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- I disagree: a rate is *not* the price of anything, although you *can* get a 1-1 correspondence between the two. Example: the price of a bond is the number of *dollars* it costs an investor to buy a financial product; the rate, OTOH, is the proportional rise in the cost of the initial investment over time. —AJR_1978 (reply).
[edit] reply about forward rates, commodities and the "proof" givenn
Forward rates: that would be good.
Commodities: see convenience yield, backwardation, contango and the theory of storage
I also have problems with the proof given. The easiest way to prove this theorem is via a no-arbitrage argument: suppose that F > Se^(r T). Then execute the following trade: buy one stock by going to the bank paying S for it. Then enter into one *short* forward contract costing 0. In fact all trades at the initial time sum to zero. At time T, sell the stock, reverse the forward contract and then the money left over will equal F - Se^(rT), (the uncertainty of the stock price at time T is cancelled out by the forward contract), which by hypothesis, is positive. This is an arbitrage profit. Consequently, we have a contradiction. (this is called a cash and carry arbitrage because you "carry" the stock until maturity)
The case F < Se^(rT) is proved similarly, but if you look at the convenience yield page, you will see that if there are finite stocks/inventory, the reverse cash and carry arbitrage is not always possible. It would depend on the elasticity of demand for forward contracts and such like.
[edit] re:merge with forward contract
It seems very reasonable to merge these articles. There are other possible mergees also (e.g. spot price, covered interest arbitrage, some of the "see also's") but there is no reason to get carried away - perhaps a better division and cross references could be devised.
There does seem to be a division in explanations. In one the convenience yield, dividends, etc. are dealt with as cash flows, and in the other as a rate. As this article is starting to do, perhaps we could do both completely in one article and then show the correspondence of the two models.
[edit] re:merge with forward contract
No, you should not merge these two articles. While this may be confusing, generally a forward price refers to the price of buying a futures contract, although these two prices should be in parody. This comes from the difficulty of obtaining accurate data when it comes to the pricing of forwards, so the futures markets are used as an estimate of sorts.
[edit] Notation headline
Notation headline should be changed for Formula headline, shouldn't it? The important data is the formula, and the Index does not reflect it is actually there.
