Question

What are the assumptions made in the valuation of forwards

Answer 1

Answer:

The following are the assumptions.

Explanation:

A forward contract is a customizeable derivative contract between two parties to buy or sell an asset at a specified price on a future date.

Forward contracts can be tailored to a specific commodity, amount and delivery date.

Forward contracts do not trade on a centralized exchange and are considered over-the-counter (OTC) instruments.

Answer 2

Assumptions that made in the valuation of forwards

Explanation:

Forward is a form of derivatives where two parties make an agreement to buy or sell something on a future agreed date. the contract may relate to various items such as commodities, oil, natural gas, foreign exchange etc.

There are various assumptions made in valuation of forwards such as-

• the initial value of a forward is zero, it gains a non zero value only when an agreement is made regarding buying and selling.
• the forward contract have no transaction cost.
• short- sales can be made in case of forwards.

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Assumptions made in the valuation of forwards

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