Forward Price Calculator |
Forward prices are used to price futures and options. They are exactly the same as regularily quoted prices with the exception of the settlement dates, i.e. the date you pay for the security and take posssetion of it.
Normally, if you purchase a stock or bond, you will pay for it the following day. But, if you want to pay for it at a different time (a week, month, 3 months or year later), then the price you pay must be adjusted.
This calculator allows you to determine the fair price you must pay for a forward settlement date. For example, assume you wish to purchase a stock one month from now. To lock in today's price, you agree to buy it today but pay for it in 30 days. During that time, the stock pays a dividend. If you paid for the stock today, you would recieve the dividend. But since the owner of record is the other party, they receive the dividend. Therefore, we need to modify the current price to account for the payment you should have received. This forward price calculator takes into account such cashflows and will tell you the fair price to pay.
| Security Type: Stock Bond |
| Solve For: Forward Price Implied Repo |
| Today: |
| Current Price: |
| Forward Settle: |
| Short Rate: |
| Dividends: Coupon: |
| Dividend Date: Coupon Date: |
| Dividend Amt: Coupon Amt: |
| date | Fwd Price | Days | ImpRepo | Fwd Value |
|---|---|---|---|---|
| Value | 0.00 | 0.00 | 0.00 | 0.00 |
| Display: Vary Forward Settle Forward Convergence |
| Shows the forward prices for settlement dates from today to ending forward settle. Shows how forward prices will converge to the fixed settlement date. |
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The common formula for calculating the forward price is: FWD = PV*( 1+(n*R/36000) ) - ValDivs
where PV = the cost of the underlying asset; n = number of days between trade and forward settle; R = short term investment rate (such as Libor) ValDivs = the value of the dividends (or coupons) received (including short term reinvestment) |
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Short Rate is the interest rate that you will receive on your money during the time between trade and forward settle.
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Present value is the price of the underlying asset plus any accrued interest. For stocks or other commodities, the present value is equal to the price. But for bonds, the present value is the price of the bond plus accrued interest.
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The value of dividends (or coupons) is important variable when computing forward prices. Many times, this value is equal to zero - such as a non-dividend paying stock, a zero coupon bond, or commodity. But if the stock pays a dividend between the trade date and forward settle it will go to the previous owner, thus it must added to the worth of the forward price. The same applies to coupons paid during the forward period when analyzing bonds.
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Implied repo is synonymous with the short rate. This is the value you would like to calculate if you already know the forward value. It will tell you whether the future is over, under, or fairly price with current market conditions.
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Carry is the difference between the interest earned and the dividends (or coupons) paid.
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