Hello, I have the following question: Topic Test 1 - Derivatives - Parisi V2
[question removed by moderator] For me: The price of a forward is always positive and stays the same over the contract. It is the value which changed and can be positive (profit for long forward holder) or negative (profit for short forward holder), depending on how the underlying asset evolves in value. Can you confirm my thoughts? Regards
That’s right: the value to the long (or short) party can fluctuate from positive to negative over the life of the forward depending on the current forward price in the market for the same asset on the same maturity date.
OK Thanks. And you confirm that: The price of a forward is always positive and stays the same over the contract.
This is the way I see it: a forward price’s lower bound is zero, just like the spot price of an asset. Therefore, forward prices cannot be negative.
The forward price entered into at inception is the forward price you’ve contractually agreed to transact at on the contract’s maturity, but the current market price of that forward contract can change over time and as a result the value of your position can fluctuate between now and maturity.
Hope that clears it up?
Ok. Thanks
So the price of forward is always positive and stays the same. On a daily basis, after inception, other forward contracts can be issued with forward price higher/lower than the price of the first forward. The change of spot rate of the underlying affects the value of the forward but no its price (which stays the same from inception).
That’s right