Contingent Forward Contract In Chicago
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FAQ
Common types of contingent claim derivatives include options and modified versions of swaps, forward contracts, and futures contracts. Any derivative instrument that isn't a contingent claim is called a forward commitment. Vanilla swaps, forward and futures are all considered forward commitments.
A forward contract is an obligation to borrow (or invest) a • A forward contract is an obligation to borrow (or invest) a prespecified amount at a prespecified interest rate (forward rate) for a prespecified time. For example, to borrow $1M in two years from now at a forward rate of 5%, for one year.
Examples are employee stock options, warrants and other convertible securities, and investments with embedded options such as callable bonds or contingent convertible bonds.
While a forward commitment contains an obligation to carry out the transaction as planned, a contingent claim contains the right to carry out the transaction but not the obligation. As a result, the payoff profiles between these derivatives vary, and that affects how the contracts themselves trade.
A contingent claim is a derivative instrument that provides its owner a right but not an obligation to a payoff determined by an underlying asset, rate, or other derivative. Contingent claims include options, the valuation of which is the objective of this reading.
A deal contingent forward is a specialised forward foreign exchange (FX) contract. The hedging customer is only obliged to fulfil the contract if a planned major transaction, such as an acquisition, occurs.
Futures contracts are traded on organized exchanges, whereas forward contracts are traded over the counter (OTC) between two parties. In exchange-traded futures, the exchange acts as the counter party to both buyer and seller, and the exchange regulates the trades.
Forward Contracts can broadly be classified as 'Fixed Date Forward Contracts' and 'Option Forward Contracts'. In Fixed Date Forward Contracts, the buying/selling of foreign exchange takes place at a specified future date i.e. a fixed maturity date.
A "contingent contract" is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen.
