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Forward_ContractForward Contract is a Tradable that represents a financial contract that binds its holder with the obligation to receive from the counterparty in a specific future date a single unit of a specified underlying tradable in exchange of x units of another reference tradable.
The future date when the agreed transaction should be conducted (but settled perhaps a bit later) is being referred as the forward's maturity.
The number x is being referred as the forward's strike.
Typically the reference tradable is a currency.
One example is the forward on a stock, where the two parties promise to exchange a stock for cash on a certain future date.
Note that according to the usual specifications of a stock acquisition contract, the receiver of the stock will have no rights to receive the next dividend if the trade settles on or after the ex-dividend date of the stock.
Another example is the forward on a bond, where the two parties promise to exchange a bond for cash on a certain future date.
Note that according to the usual specifications of a bond acquisition contract, the receiver of the bond will receive the whole upcoming coupon, even if it were accruing before the bond settlement date.
This fact will obviously affect the fair strike of the forward contract, i.e. the strike that both counterparties will be willing to agree upon.
A last example is the forward on an interest rate swap, where the two parties promise to enter into an interest rate swap on a certain future date.
Here there may be a confusion as to how the underlying is exactly defined.
If the underlying swap is alive today, then at forward maturity the two parties will start exchanging the same cash flow schedule - from that time on - as if they had entered into the swap today.
On the other hand, if the underlying swap is defined as swap with its start date set at forward maturity, then at forward maturity the two parties will start exchanging a cash flow schedule quite defferent from that above.
This fine distinction arises in the specification of the swaption contract, where the underlying is a swap like the second type above, i.e. a swap that starts accruing at the swaption's expiry date.
It follows that the forward of a swap running today is not the same as the respective forward starting swap, which means the type here cannot be used to construct the forward contract associated with a swaption viewed as an option on a running swap.