A note on forward price and forward measure

Ren Raw Chen; Jing Zhi Huang

doi:10.1023/A:1020715407939

A note on forward price and forward measure

Ren Raw Chen^*
, Jing Zhi Huang

^*Corresponding author for this work

Rutgers - The State University of New Jersey, New Brunswick
Pennsylvania State University

Research output: Contribution to journal › Journal Article › peer-review

2 Scopus citations

Abstract

The forward measure is convenient in calculating various contingent claim prices under stochastic interest rates. We demonstrate that caution needs to be drawn when the forward measure is used to price contingent claims that involve multiple cash flows. We also derive partial different equations for the forward price to demonstrate how forward contracts can be used for dynamic hedging and how hedges can be conducted if the payoff of a contingent claim depends on the forward price.

Original language	English
Pages (from-to)	261-272
Number of pages	12
Journal	Review of Quantitative Finance and Accounting
Volume	19
Issue number	3
DOIs	https://doi.org/10.1023/A:1020715407939
State	Published - 2002
Externally published	Yes

Keywords

Forward measure
Forward price
Stochastic interest rates

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10.1023/A:1020715407939

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title = "A note on forward price and forward measure",

abstract = "The forward measure is convenient in calculating various contingent claim prices under stochastic interest rates. We demonstrate that caution needs to be drawn when the forward measure is used to price contingent claims that involve multiple cash flows. We also derive partial different equations for the forward price to demonstrate how forward contracts can be used for dynamic hedging and how hedges can be conducted if the payoff of a contingent claim depends on the forward price.",

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AU - Huang, Jing Zhi

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AB - The forward measure is convenient in calculating various contingent claim prices under stochastic interest rates. We demonstrate that caution needs to be drawn when the forward measure is used to price contingent claims that involve multiple cash flows. We also derive partial different equations for the forward price to demonstrate how forward contracts can be used for dynamic hedging and how hedges can be conducted if the payoff of a contingent claim depends on the forward price.

KW - Forward measure

KW - Forward price

KW - Stochastic interest rates

UR - https://www.scopus.com/pages/publications/34548589487

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DO - 10.1023/A:1020715407939

M3 - 文章

AN - SCOPUS:34548589487

SN - 0924-865X

VL - 19

SP - 261

EP - 272

JO - Review of Quantitative Finance and Accounting

JF - Review of Quantitative Finance and Accounting

IS - 3

ER -

A note on forward price and forward measure

Abstract

Keywords

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