The last six issues of our Derivatives 101 series detailed the derivatives instruments, the trading process, derivatives strategies and the key differences between stocks and derivatives trading.
This 7th issue gives an in-depth explanation of “Derivatives pricing” and specifically futures contracts traded at the Nairobi Securities Exchange (NSE).
The report begins with a brief explanation about futures pricing in relation to the price of the asset (stock) at the spot market.
We also discuss fair value, marking to market and cost of carry model used in pricing of futures contracts.
To conclude, we give two examples to demonstrate pricing of futures contracts with zero dividends and when dividend are expected during the life of the contract. Download Report