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The forward curve is a function graph in finance that defines the prices at which a contract for future delivery or payment can be concluded today. For example, a futures contract forward curve is prices being plotted as a function of the amount of time between now and the expiry date of the futures contract (with the spot price being the price at time zero).
The futures or forward curve would typically be upward sloping (i.e., "normal"), since contracts for further dates would typically trade at even higher prices. The curves in question plot market prices for various contracts at different maturities (cf. term structure of interest rates). "In broad terms, backwardation reflects the majority ...
The resulting futures or forward curve would typically be downward sloping (i.e. "inverted"), since contracts for further dates would typically trade at even lower prices. [2] In practice, the expected future spot price is unknown, and the term "backwardation" may refer to "positive basis", which occurs when the current spot price exceeds the ...
For example, a futures contract on a zero-coupon bond will have a futures price lower than the forward price. This is called the futures "convexity correction". Thus, assuming constant rates, for a simple, non-dividend paying asset, the value of the futures/forward price, F(t,T), will be found by compounding the present value S(t) at time t to ...
Energy contracts are rolled monthly, all other commodity futures contracts are rolled annually. This rolling procedure was adopted given the historical tendency for energy curves to be in backwardation and metal and agricultural forward curves to be in contango. Futures contracts rolling takes place between the second and sixth business day of ...
In finance, a forward contract, or simply a forward, is a non-standardized contract between two parties to buy or sell an asset at a specified future time at a price agreed on in the contract, making it a type of derivative instrument.