Derivatives
Valuation of Interest Rate Swaps
When an interest rate swap is contracted, its initial value is zero. However, after some time passes, its value may become positive or negative for one of the […]
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Reader level: Advanced
Derivatives
Extending SWAP Zero Curve
To value derivatives, traders rely on LIBOR (London Interbank Offered Rate) as the risk-free interest rate. The problem is that these rates are only available for up to […]
Derivatives
Expected Spot Price
How can we assess the market’s expectation about the future change in the price of an asset? For example, if today the spot price of one ton of […]
Derivatives
Futures on Commodities
The Futures Price Formula for Commodities Requires Additional Ingredients Such commodities can be predominantly investment-oriented (e.g., gold, silver) or predominantly consumption-oriented (e.g., copper, oil). The latter requires taking […]
Derivatives
Forward vs Futures Prices
Since forward pricing formulas are used to evaluate futures, the question arises: are futures and forwards priced the same? Theoretically, in the long run, it is said that […]
Derivatives
Valuing Forward Contracts
Before we move to valuing a forward contract, it’s important to understand the connection between the spot price of an asset and its forward price. Let’s start with […]
Derivatives
📉 Short Selling vs. Regular Buying
💡 Most investors know how to make money when stocks rise… but did you know you can also profit when stocks fall? That’s called short selling (or “shorting”). […]