Show TOC

 Forward Stock Transactions (Listed) Locate this document in the navigation structure

Use

The market price calculator for forward stock transactions calculates current market values, time values, and future market values (the future point in time is the horizon).

Forward stock transactions are agreements to purchase or sell stocks at an agreed upon price at some point in the future.

Caution Caution

To evaluate forward stock transactions in risk analysis, you must create the transactions as orders to be exercised in the future, and then assign the order a flow type that has the Forward transaction flag set in Customizing. Otherwise, when you maintain a financial object for an order, you do not see the Risk Management part.

End of the caution.

Integration / Calculation Basis

To value a forward stock transaction, you need the transaction data (including any fixed dividend increases and dividend payment dates), and alternatively a par coupon or zero coupon yield curve in the transaction currency (ask or bid rate) for the evaluation date.

Zero bond discounting factors are needed as further input parameters in order to discount the cash flow. Only the zero coupon calculation method can be used to for define zero bond discounting factors.

If the transaction currency differs from the display currency, the transaction currency is changed into the display currency using the currency rate from the horizon. If the horizon is later than the evaluation date, the corresponding forward currency rate (bid or ask price) is calculated for the evaluation date using the yield curves from the transaction and display currencies.

To calculate the initial parameters you use the function module for the calculation of the zero bond discounting factors.

Scope of Functions / Valuation

The value of the forward transaction on the horizon is the difference (discounted to the horizon) between the forward price and the agreed purchase or selling price, multiplied by the number of shares of stock in the transaction.

The following distinctions need to be made before valuation:

  • The settlement date of the transaction is before the horizon

In this case, the bought or sold forward securities constitute a position. The forward stock transaction no longer has any value on the horizon.

  • The settlement date of the transaction is after the horizon

In this case, the value of the forward transaction is calculated.

The value of the forward transaction on the horizon is the difference (discounted to the horizon) between the forward price and the agreed purchase or selling price, multiplied by the number of shares of stock in the transaction.

The following abbreviations/definitions are used:

St:

Number of stocks to be bought or sold on the expiration date

TK:

Agreed buy or sell price

AK:

Stock price on the evaluation date

BW(TK):

Net present value on the horizon of the cash flows from the sale or purchase

ZW(AK):

Price on the evaluation date valid until the horizon (no interest accrual)

K:

Call/put indicator

NPV:

Net present value

( )

If the display currency differs from the transaction currency, the NPV is calculated using the forward currency rate.