Instructional Video: Pricing Financial Forwards and Futures

Topic Progress:

Hull, Chapter 5 is a 53 minute instructional video analyzing the following concepts:

* Differentiate between investment and consumption assets.
* Define short-selling and calculate the net profit of a short sale of a dividend-paying stock.
* Describe the differences between forward and futures contracts and explain the relationship between forward and spot prices.
* Calculate the forward price given the underlying asset’s spot price, and describe an arbitrage argument between spot and forward prices.
* Explain the relationship between forward and futures prices.
* Calculate a forward foreign exchange rate using the interest rate parity relationship.
* Define income, storage costs, and convenience yield.
* Calculate the futures price on commodities incorporating income/storage costs and/or convenience yields.
* Calculate, using the cost-of-carry model, forward prices where the underlying asset either does or does not have interim cash flows.
* Describe the various delivery options available in the Futures markets and how they can influence futures prices.
* Explain the relationship between current futures prices and expected future spot prices, including the impact of systematic and nonsystematic risk.
* Define and interpret contango and backwardation, and explain how they relate to the cost-of-carry model.

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