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Both parties could enter into a forward contract with each other. Suppose that they both agree on the sale price in one year's time of $104,000 (more below on why the sale price should be this amount). Alice and Bob have entered into a forward contract. Bob, because he is buying the underlying, is said to have entered a long forward contract.
For example, for bond options [3] the underlying is a bond, but the source of uncertainty is the annualized interest rate (i.e. the short rate). Here, for each randomly generated yield curve we observe a different resultant bond price on the option's exercise date; this bond price is then the input for the determination of the option's payoff.
In business and contract law, a forward-forward agreement (FFA) is a form of forward rate agreement in which party A agrees to lend party B the m 1 amount of money, at future time t 1. In return, B will pay to A a larger monetary amount m 2 at time t 2 > t 1. The name "forward-forward agreement" derives from the fact that both issuing and ...
Any derivative instrument that is not a contingent claim is called a forward commitment. [ 3 ] The prototypical contingent claim is an option , [ 1 ] the right to buy or sell the underlying asset at a specified exercise price by a certain expiration date; whereas ( vanilla ) swaps , forwards , and futures are forward commitments, since these ...
The payoff depends on the optimal (maximum or minimum) underlying asset's price occurring over the life of the option. The option allows the holder to "look back" over time to determine the payoff. There exist two kinds of lookback options: with floating strike and with fixed strike.
Its primary applications are for pricing options on future contracts, bond options, interest rate cap and floors, and swaptions. It was first presented in a paper written by Fischer Black in 1976. Black's model can be generalized into a class of models known as log-normal forward models.
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Taleb and Holy Grail Distributions. In economics and finance, a Taleb distribution is the statistical profile of an investment which normally provides a payoff of small positive returns, while carrying a small but significant risk of catastrophic losses.