2008 FRM Practice Exam 2 - Q21

[liordp]

The dividend yield of an asset is 10% per annum. what is the delta of a long forward contract on the asset with 6 month to maturity ?
a. 0.95
b 1
c 1.05
d cant be determnined

ANSWER is 0.95 .

I think its wrong cause the delta of a long forward is 1 .

if it was a future then th answer is 1*exp(-0.1*.5)=0.95

I be more than happy if u could explain
thanks
lior

 

[David Harper CFA FRM]

Hi lior

delta of forward = 1.0 and future = exp(rt), but with dividend (q),
delta of forward = exp(-qT) and future = exp((r-q)*T)

it may help to connect with cost of carry (with q):
F = S *exp((r-q)T)

the delta is first derivative: dF/dS, so the delta is just the multiplier on the asset price (S)

David