标题: Value (long position on equity index) [打印本页] 作者: soverby 时间: 2011-7-13 13:35 标题: Value (long position on equity index)
Could someone tell me why is the Value of the long position on an equity index equal to (S / (e^dividend yield)) - (FP / e^risk free rate))?
*I've slightly slightly simplified the formula.作者: jacksparrow 时间: 2011-7-13 13:35
just gotta subtract the continuously compounded div yield, because dividends on indices are "continuous" because it's an index not a single stock. So it's just spot-PV divs minus PV future price, the price we locked in at. Hence we want that spot price to go up and be greater than FP if we are long it作者: mp3bu 时间: 2011-7-13 13:35
because you aren't PV-ing the current spot price, you are just taking out the dividends. But you have to PV the forward price you locked in at to bring it back to the spot date (now).
The way they do currency forwards is confusing. Give me your email and i'll show you a better way.作者: bingbingliang 时间: 2011-7-13 13:35
Cheers, its marcfa at gmail作者: luda002 时间: 2011-7-13 13:35
Hey AndrewUNH,
I've been having some trouble wrapping my head around the currency forwards as well. Go you think you could froward that email to me too? jdadoun@gmail.com
Much appreciated!作者: YAhmed 时间: 2011-7-13 13:35
Sorry head is fried after a day of MCQ's. My e-mail is markcfa at gmail作者: WarrenB1 时间: 2011-7-13 13:35
These formulas just look weird after they multiply things through. Just go back to first pricipal intuitive formulas, and it may be easier.
Stock Index
(1) F = S*e^(rt - dt); now we can divide both sides by e^rt, and get: Fe^-rt = Se^-dt
So, now for value, just subtract the Fe^-rt from both sides
Currency
(2) F = S*[(1+r_dom)/(1+r_for)]; divide each side by 1+r_dom => F/(1+r_dom) = S/(1+r_for); now subtract the left from the right
I always start with the intuitive formula before they monkey around with notation. Makes sense? If you don't understand the original formula, then you need to start over with that understanding. If you get those, then the rest is just algebra. Good luck.
