Forwards and Futures: Pricing and Risks
This curriculum expands on the introductory information provided in Derivative Instruments to present a more in–depth look at forwards and futures. It explores the definitions, pricing and applications of the different types of contracts, including forward rate agreements (FRAs), short–term interest rate futures, bond and note futures, and stock index futures. The curriculum also explains the different types of risk associated with forwards and futures.
This curriculum is made up of the following modules:
- Introduction to Forwards and Futures
- Forward Rate Agreements
- Short-Term Interest Rate Futures
- Note and Bond Futures
- Stock Index Futures
- Risks of Forwards and Futures
| Program Level | Intermediate |
| Prerequisites | Derivative Instruments or equivalent level of knowledge. |
| Advance Preparation | No advance preparation required. |
| Recent Revision Date | June 4, 2015 |
| Instructional Delivery Method | QAS Self Study |
| Field of Study | Specialized Knowledge and Applications |
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Duration : 1 hour
- Definitions of forwards and futures
- Spot vs. forward delivery
- Basics of pricing
- Characteristics of forwards
- Characteristics of futures
- Margin
- Cash settlement vs. physical delivery
Duration : 1 hour
- Defining an forward rate agreement
- Hedging with forward rate agreements
- Speculating with forward rate agreements
- How forward rate agreements are priced
- How the forward curve is constructed
Duration : 1 hour
- Characteristics of short-term interest rate futures
- Quoting conventions: forward rate agreements vs. short-term interest rate futures
- How futures are listed
- Applications of short-term interest rate futures
- Role of Eurodollar futures in pricing other products
Duration : 1 hour
- Contract specifications
- Conversion factors and cheapest to deliver
- Invoice amount and accrued interest
- Pricing: cash and carry
- Finding the cheapest to deliver
- Hedging with bond and note futures
Duration : 1 hour
- Underlying indices
- Characteristics and specifications of stock index future contracts
- Determining the fair futures price
- Using stock index futures
- Adjusting hedge ratio for beta
Duration : 1 hour
- Risks common to forwards and futures
- Risks specific to forwards
- Risks specific to futures