Spot futures parity theorem

Similar financial terms

Spot volatilities
The volatilities used to price a cap when a different volatility is used for each caplet.

Theoretical spot rate curve
A curve derived from theoretical considerations as applied to the yields of actually traded Treasury debt securities because there are no zero-coupon Treasury debt issues with a maturity greater than one year. Like the yield curve, this is a graphical depiction of the term structure of interest rates.

Spot trade
The purchase and sale of a foreign currency, commodity, or other item for immediate delivery.

Spot rate curve
The graphical depiction of the relationship between the spot rates and maturity.

Spot rate
The theoretical yield on a zero-coupon Treasury security.

Spot price
The current marketprice of the actual physical commodity. Also called cash price.

Spot month
The nearest delivery month on a futures contract.

Spot lending
The origination of mortgages by processing applications taken directly from prospective borrowers.

Spot interest rate
Interest rate fixed today on a loan that is made today.

Spot exchange rates
Exchange rate on currency for immediate delivery.

Theoretical futures price
Also called the fair price, the equilibrium futures price.

Next futures contract
The contract settling immediately after the nearby futures contract.

Nearby futures contract
When several futures contracts are considered, the contract with the closest settlement date is called the nearby futures contract. The next futures contract is the one that settles just after the nearby futures contract. The contract farthest away in time from settlement is called the most distant futures contract.

National Futures Association (NFA)
The futures industry self regulatory organization established in 1982.

Most distant futures contract
When several futures contracts are considered, the contract settling last.

London International Financial Futures Exchange
London International Financial Futures Exchange (LIFFE) is a London exchange where Eurodollar futures as well as futures-style options are traded.

The Commodity Futures Trading Commission (CFTC)
The Commodity Futures Trading Commission is the federal agency created by Congress to regulate futures trading. The Commodity Exchange Act of 1974 became effective April 21, 1975. Previously, futures trading had been regulated by the Commodity Exchange Authority of the USDA.

Synthetic Futures
A position created by combining call and put options. A synthetic long futures position is created by combining a long call option and a short put option for the same expiration date and the same strike price. A synthetic short futures is created by combining a long put and a short call with the same expiration date and the same strike price.

Relative purchasing power parity (RPPP)
Idea that the rate of change in the price level of commodities in one country relative to the price level in another determines the rate of change of the exchange rate between the two countries' currencies.

Put-call parity relationship
The relationship between the price of a put and the price of a call on the same underlying security with the same expiration date, which prevents arbitrage opportunities. Holding the stock and buying a put will deliver the exact payoff as buying one call and investing the present value (PV) of the exercise price. The call value equals C=S+P-PV(k).

Purchasing power parity (PPP)
The notion that the ratio between domestic and foreign price levels should equal the equilibrium exchange rate between domestic and foreign currencies.

Two-fund separation theorem
The theoretical result that all investors will hold a combination of the risk-free asset and the market portfolio.

Separation theorem
The value of an investment to an individual is not dependent on consumption preferences. All investors will want to accept or reject the same investment projects by using the NPV rule, regardless of personal preference.

Portfolio separation theorem
An investor's choice of a risky investment portfolio is separate from his attitude towards risk.

Mutual fund theorem
A result associated with the CAPM, asserting that investors will choose to invest their entire risky portfolio in a market-index or mutual fund.