Pricing forwards and futures prices and the dynamics of futures

Pricing forwards and futures prices and the dynamics of futures

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This report will detail how to price forwards and futures price along with the dynamics of futures prices and an example of how to hedge an exposure to the FTSE 100.

Throughout this report we will look into the pricing of futures and forwards, detailing the common formulas used throughout the financial industry in the 21st century. We will compare both OTC forwards and exchange traded future pricing and write about the advantages and disadvantages to both forms of derivative. We will then go further to elaborate on futures options to explain the dynamics of prices involved with these derivatives including understanding price fluctuations and volatilizes over time, more specifically we will be analysing the markets over a 3 month period to give an example of a hedge against exposure to the FTSE 100 and will further discuss the benefits and costs to our outlined strategy.