Dear all, what would be the difference between FX forward and FX futures pricing formulas, both in continuous and discrete time, for stochastic and non-stochastic interest rates?
Is there also a good reference briefly explaining this issue?
Your answers would be greatly appreciated.
Serving the Quantitative Finance Community
-
- Islacanela
- Posts: 10
- Joined:
Re: Valuing Currency Futures
Is my understanding correct that in case of stochastic interest rates (and continuous time and compounding) the FX forward price will be given by the interest rate parity
[$]F_0 = S_0 e^{(r_d-r_f)(T-t)}[$],
but FX futures prices is NOT equal to [$]F_0[$] (even though perhaps close to [$]F_0[$])??
[$]F_0 = S_0 e^{(r_d-r_f)(T-t)}[$],
but FX futures prices is NOT equal to [$]F_0[$] (even though perhaps close to [$]F_0[$])??
Re: Valuing Currency Futures
Here's a good classic discussion on the difference between forwards and futures: link