## Theoretical value of futures contract

A futures contract is an agreement between a buyer and seller of the contract that some asset--such as a commodity, currency or index--will bought/sold for a specific price, on a specific day, in the future (expiration date). The contract value at any one time is the futures price at that time for one unit -- a barrel of oil -- multiplied by the number of units in the contract-- in this case 1,000.Futures prices arise from an ongoing open-outcry auction on a futures exchange floor where traders place bids and asks around a trading pit. Now consider a futuresandforward contract that has3 days to go to settlement. The forward and futures prices are both set at \$1000.0. After 1 day the prices change to 1200; after 2 days prices are at 1500, and the settlement price is 1600. The 3 day proﬁt on the forward position is \$600.

Specifically, the fair value is the theoretical calculation of how a futures stock index contract should be valued considering the current index value, dividends paid on stocks in the index, days to expiration of the futures contract, and current interest rates. At a spot price of \$9, the notional value of a soybean futures contract is \$45,000, or 5,000 bushels times the \$9 spot price. It is possible to calculate a theoretical fair value for a futures contract. The fair value of a futures contract should approximately equal the current value of the underlying shares or index, plus an amount referred to as the 'cost of carry'. Value of a futures contract The value of a futures contract is different from the future price. It is the value of the long or short position in the futures contract itself and it depends on whether the spot price of the underlying asset at the time of valuation is higher or lower than the agreed futures price and the risk-free interest rate. Theoretical Value In options and futures contracts, a mathematically derived estimate of the value of the contract. The concept has come under criticism for not accurately describing true market value: because theoretical value is based on past performance, it does not take into account potential future events such as changes in demand. Futures Arbitrage. A futures contract is a contract to buy (and sell) a specified asset at a fixed price in a future time period. There are two parties to every futures contract - the seller of the contract, who agrees to deliver the asset at the specified time in the future, and the buyer of the contract, who agrees to pay a fixed price and take delivery of the asset. In finance, a futures contract' is a standardized forward contract, a legal agreement to buy or sell something at a predetermined price at a specified time in the future, between parties not known to each other. The asset transacted is usually a commodity or financial instrument. The predetermined price the parties agree to buy and sell the asset for is known as the forward price. The specified time in the future—which is when delivery and payment occur—is known as the delivery date

## 15 Apr 2019 Assessing Contract Value. The value of a futures contract is constantly changing to reflect the price of the underlying asset. Futures contracts are

19 Jan 2019 Here, Rs 6 is the theoretical or fair cost of carry. So the futures contract should be trading around this value of Rs 1006. Note: You may refer to  23 Apr 2014 inflation and unexpected changes in commodities, exhibit prices that differ from the theoretical price of its futures contract. Introduction. 13 Apr 2011 Price changes in the futures contract are settled daily. • Hence the spot price forward and futures prices are no longer theoretically identical. contracts (PVIOS) traded at Futures and Options Market (VIOP) are In case of corporate actions, the theoretical price is the price calculated by the Index and. 12 Nov 2015 There is an arbitrage relationship between the spot and the futures. The theoretical price of the futures is the spot, plus interest, minus the  The theoretical DSP for unexpired futures contracts, which are not traded during the last half an hour on a day, is the price computed as per the prescribed  Results indicate that the futures contracts exhibit minimal variation from their theoretical value. Te average mispricing equates to 1.96 basis points for 3 Year and

### The theoretical price of a future contract is sum of the current spot price and cost of carry. However, the actual price of futures contract very much depends upon

carry model is used to value any derivative, futures contracts, any derivative futures contract. price is 28,439 as our theoretical forward price for M1 contract. 23 Jul 2019 Futures products are derivative products whose price or value rely largely on the The theoretical price of a futures contract is a mathematical  It seems to me that the reason the futures price would be higher than the spot price is because the market is valuing this risk at the difference between the two

### The theoretical spot price is published in five-minute intervals on the TOCOM Covers Asia, Europe and U.S. trading, Gold Rolling Spot Futures contract is

Theoretical daily settlement price for unexpired futures contracts, which are not traded during the last half an hour on a day, shall be the price computed as per  The price of the forward contract is related to the spot price of the underlying asset, the risk-free The theoretical or “fair” price is derived from the cash-and- carry. empirical investigations. The theoretical background of these studies is the The cost-of-carry formula gives the fair price of the futures contract: F_{t,T} = S_t

## Now consider a futuresandforward contract that has3 days to go to settlement. The forward and futures prices are both set at \$1000.0. After 1 day the prices change to 1200; after 2 days prices are at 1500, and the settlement price is 1600. The 3 day proﬁt on the forward position is \$600.

Futures markets trade futures contracts. A futures contract is an agreement between a buyer and seller of the contract that some asset--such as a commodity, currency or index--will bought/sold for a specific price, on a specific day, in the future (expiration date). Fair value is the theoretical assumption of where a futures contract should be priced given such things as the current index level, index dividends, days to expiration and interest rates. The actual futures price will not necessarily trade at the theoretical price, as short-term supply and demand will cause price to fluctuate around fair value. The value of a futures contract is different from the future price. It is the value of the long or short position in the futures contract itself and it depends on whether the spot price of the underlying asset at the time of valuation is higher or lower than the agreed futures price and the risk-free interest rate.

In finance, a futures contract' is a standardized forward contract, a legal agreement to buy or sell something at a predetermined price at a specified time in the future, between parties not known to each other. The asset transacted is usually a commodity or financial instrument. The predetermined price the parties agree to buy and sell the asset for is known as the forward price. The specified time in the future—which is when delivery and payment occur—is known as the delivery date Futures markets trade futures contracts. A futures contract is an agreement between a buyer and seller of the contract that some asset--such as a commodity, currency or index--will bought/sold for a specific price, on a specific day, in the future (expiration date). Fair value is the theoretical assumption of where a futures contract should be priced given such things as the current index level, index dividends, days to expiration and interest rates. The actual futures price will not necessarily trade at the theoretical price, as short-term supply and demand will cause price to fluctuate around fair value. The value of a futures contract is different from the future price. It is the value of the long or short position in the futures contract itself and it depends on whether the spot price of the underlying asset at the time of valuation is higher or lower than the agreed futures price and the risk-free interest rate. The prices calculated above are the theoretical value of these contracts. Sometime, due to imbalances in supply or demand, the actual prices can be out of line with what we would expect. Over time, they should balance out as arbitragers get paid to take on the risks of executing the portfolio trades as described above. Generally, the price of a futures contract is related to its underlying asset by the spot-futures parity theorem, which states that the futures price must be related to the spot price by the following formula: Futures Price = Spot Price × (1 + Risk-Free Interest Rate – Income Yield)