Microsoft PowerPoint - PoF.ppt

Definitionƒ 131

A

forward

/outright

contract

is an agreement for the

purchase (

long position, forward purchase, FP

) or sale

(short position, forward sale, FS

) of a

prespecified

number of units of the underlying

at a certain time in

the future,

T

, at a

prespecified price (strike

price/delivery price/forward price),

F

t0,T

.

ƒ

Note: Delivery and payment takes place in the future on a date stated in the contract,

T

.

ƒ

Note: It can be contrasted with a spot contract which is an agreement to buy or sell immediately.

ƒ

OTC
Derivative securities: Forwards - Introduction