Thursday, February 3, 2011

various meanings of "forward"

Note any time people say "forward", it's relative to "spot" or current. Background - There's always some _fluctuating_, measurable variable. Think of it as temperature. It has an observable current level, and people try to estimate the level in x months, and people trade on that estimate.

forward price of an underlying security -- is the simplest. Relevant in the Black-Scholes

"forward price" in Treasury -- is probably a misnomer IMO. P132 [[complete guide]] clarifies the 2 meanings of "forward-price"

forward rate -- see blog on FRA. It is like a CD rate for a 3 month term starting x months from today.

forward contract -- see blog. It's a contract to delivery some copper, or currency, or a treasury.

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