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Spot–future Parity
Spot–future parity (or spot-futures parity) is a parity condition whereby, if an asset can be purchased today and held until the exercise of a futures contract, the value of the future should equal the current spot price adjusted for the cost of money, dividends, " convenience yield" and any carrying costs (such as storage). That is, if a person can purchase a good for price ''S'' and conclude a contract to sell it one month later at a price of ''F'', the price difference should be no greater than the cost of using money less any expenses (or earnings) from holding the asset; if the difference is greater, the person has an opportunity to buy and sell the "spots" and "futures" for a risk-free profit, ''i.e.'' an arbitrage. Spot–future parity is an application of the law of one price; see also Rational pricing and #Futures. The spot-future parity condition does not say that prices must be equal (once adjusted), but rather that when the condition is not met, it should be possi ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Asset
In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can be converted into cash (although cash itself is also considered an asset). The balance sheet of a firm records the monetaryThere are different methods of assessing the monetary value of the assets recorded on the Balance Sheet. In some cases, the ''Historical Cost'' is used; such that the value of the asset when it was bought in the past is used as the monetary value. In other instances, the present fair market value of the asset is used to determine the value shown on the balance sheet. value of the assets owned by that firm. It covers money and other valuables belonging to an individual or to a business. Assets can be grouped into two major classes: tangible assets and intangible assets. Tangible assets contain various subclasses ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Bond Market
The bond market (also debt market or credit market) is a financial market where participants can issue new debt, known as the primary market, or buy and sell debt securities, known as the secondary market. This is usually in the form of bonds, but it may include notes, bills, and so on for public and private expenditures. The bond market has largely been dominated by the United States, which accounts for about 39% of the market. As of 2021, the size of the bond market (total debt outstanding) is estimated to be at $119 trillion worldwide and $46 trillion for the US market, according to Securities Industry and Financial Markets Association (SIFMA). Bonds and bank loans form what is known as the ''credit market''. The global credit market in aggregate is about three times the size of the global equity market. Bank loans are not securities under the Securities and Exchange Act, but bonds typically are and are therefore more highly regulated. Bonds are typically not secured by ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Futures Markets
A futures exchange or futures market is a central financial exchange where people can trade standardized futures contracts defined by the exchange. Futures contracts are derivatives contracts to buy or sell specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future. Futures exchanges provide physical or electronic trading venues, details of standardized contracts, market and price data, clearing houses, exchange self-regulations, margin mechanisms, settlement procedures, delivery times, delivery procedures and other services to foster trading in futures contracts. Futures exchanges can be organized as non-profit member-owned organizations or as for-profit organizations. Futures exchanges can be integrated under the same brand name or organization with other types of exchanges, such as stock markets, options markets, and bond markets. Non-profit member-owned futures exchanges benefit their members, who earn ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Put–call Parity
In financial mathematics, put–call parity defines a relationship between the price of a European call option and European put option, both with the identical strike price and expiry, namely that a portfolio of a long call option and a short put option is equivalent to (and hence has the same value as) a single forward contract at this strike price and expiry. This is because if the price at expiry is above the strike price, the call will be exercised, while if it is below, the put will be exercised, and thus in either case one unit of the asset will be purchased for the strike price, exactly as in a forward contract. The validity of this relationship requires that certain assumptions be satisfied; these are specified and the relationship is derived below. In practice transaction costs and financing costs (leverage) mean this relationship will not exactly hold, but in liquid markets the relationship is close to exact. Assumptions Put–call parity is a static replication, and th ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Backwardation
Normal backwardation, also sometimes called backwardation, is the market condition where the price of a commodity's forward or futures contract is trading below the ''expected'' spot price at contract maturity. The resulting futures or forward curve would ''typically'' be downward sloping (i.e. "inverted"), since contracts for further dates would typically trade at even lower prices. In practice, the expected future spot price is unknown, and the term "backwardation" may refer to "positive basis", which occurs when the current spot price exceeds the price of the future. The opposite market condition to normal backwardation is known as contango. Contango refers to "negative basis" where the future price is trading above the expected spot price. Note: In industry parlance backwardation may refer to the situation that futures prices are below the ''current'' spot price. Backwardation occurs when the difference between the forward price and the spot price is less than the cost ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Contango
Contango is a situation where the futures price (or forward price) of a commodity is higher than the ''expected'' spot price of the contract at maturity. In a contango situation, arbitrageurs or speculators are "willing to pay more owfor a commodity o be receivedat some point in the future than the actual expected price of the commodity t that future point This may be due to people's desire to pay a premium to have the commodity in the future rather than paying the costs of storage and carry costs of buying the commodity today." On the other side of the trade, hedgers (commodity producers and commodity holders) are happy to sell futures contracts and accept the higher-than-expected returns. A contango market is also known as a normal market, or carrying-cost market. The opposite market condition to contango is known as backwardation. "A market is 'in backwardation' when the futures price is below the ''expected'' spot price for a particular commodity. This is favorable for inv ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Transaction Costs
In economics and related disciplines, a transaction cost is a cost in making any economic trade when participating in a market. Oliver E. Williamson defines transaction costs as the costs of running an economic system of companies, and unlike production costs, decision-makers determine strategies of companies by measuring transaction costs and production costs. Transaction costs are the total costs of making a transaction, including the cost of planning, deciding, changing plans, resolving disputes, and after-sales. Therefore, the transaction cost is one of the most significant factors in business operation and management. Oliver E. Williamson's ''Transaction Cost Economics'' popularized the concept of transaction costs. Douglass C. North argues that institutions, understood as the set of rules in a society, are key in the determination of transaction costs. In this sense, institutions that facilitate low transaction costs, boost economic growth.North, Douglass C. 1992. “Tran ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Forward Contract
In finance, a forward contract or simply a forward is a non-standardized contract between two parties to buy or sell an asset at a specified future time at a price agreed on at the time of conclusion of the contract, making it a type of derivative instrument.John C Hull'', Options, Futures and Other Derivatives (6th edition)'', Prentice Hall: New Jersey, USA, 2006, 3 The party agreeing to buy the underlying asset in the future assumes a long position, and the party agreeing to sell the asset in the future assumes a short position. The price agreed upon is called the ''delivery price'', which is equal to the forward price at the time the contract is entered into. The price of the underlying instrument, in whatever form, is paid before control of the instrument changes. This is one of the many forms of buy/sell orders where the time and date of trade is not the same as the value date where the securities themselves are exchanged. Forwards, like other derivative securities, c ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Spot Contract
In finance, a spot contract, spot transaction, or simply spot, is a contract of buying or selling a commodity, security or currency for immediate settlement (payment and delivery) on the spot date, which is normally two business days after the trade date. The settlement price (or rate) is called spot price (or spot rate). A spot contract is in contrast with a forward contract or futures contract where contract terms are agreed now but delivery and payment will occur at a future date. Spot prices and future price expectations Depending on the item being traded, spot prices can indicate market expectations of future price movements in different ways. For a security or non-perishable commodity (e.g. silver), the spot price reflects market expectations of future price movements. In theory, the difference in spot and forward prices should be equal to the finance charges, plus any earnings due to the holder of the security, according to the cost of carry model. For example, on ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
E (mathematical Constant)
The number , also known as Euler's number, is a mathematical constant approximately equal to 2.71828 that can be characterized in many ways. It is the base of the natural logarithms. It is the limit of as approaches infinity, an expression that arises in the study of compound interest. It can also be calculated as the sum of the infinite series e = \sum\limits_^ \frac = 1 + \frac + \frac + \frac + \cdots. It is also the unique positive number such that the graph of the function has a slope of 1 at . The (natural) exponential function is the unique function that equals its own derivative and satisfies the equation ; hence one can also define as . The natural logarithm, or logarithm to base , is the inverse function to the natural exponential function. The natural logarithm of a number can be defined directly as the area under the curve between and , in which case is the value of for which this area equals one (see image). There are various other character ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Swap (finance)
In finance, a swap is an agreement between two counterparties to exchange financial instruments, cashflows, or payments for a certain time. The instruments can be almost anything but most swaps involve cash based on a notional principal amount.Financial Industry Business Ontology Version 2 Annex D: Derivatives, EDM Council, Inc., Object Management Group, Inc., 2019 The general swap can also be seen as a series of forward contracts through which two parties exchange financial instruments, resulting in a common series of exchange dates and two streams of instruments, the ''legs'' of the swap. The legs can be almost anything but usually one leg involves cash flows based on a [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Commodities
In economics, a commodity is an economic good, usually a resource, that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them. The price of a commodity good is typically determined as a function of its market as a whole: well-established physical commodities have actively traded spot and derivative markets. The wide availability of commodities typically leads to smaller profit margins and diminishes the importance of factors (such as brand name) other than price. Most commodities are raw materials, basic resources, agricultural, or mining products, such as iron ore, sugar, or grains like rice and wheat. Commodities can also be mass-produced unspecialized products such as chemicals and computer memory. Popular commodities include crude oil, corn, and gold. Other definitions of commodity include something useful or valued and an alternative term for an economic good or ser ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
