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pythonfinance

How to define a function about forward price?

I have to define a function, forward_price which takes three parameters:

spot: float
interest_rate: float
time: float

This function should compute and return the forward price, rounded at 2 decimals, of an asset in a forward contract using this classical formula:

1

I tried this :

from math import e
interest_rate = 1.03 #risk free-rate is 3%
spot_price = 40 
time = 30/360 #there is 30 days remaining
forward_price = spot_price * e ** interest_rate * time 
print(forward_price)

the result is 9.336886115663596 while the true result should be 40.10

Does someone know how to get this result and round it?

Solution

  • The issue seems to come from adding 1 to the interest rate. If you leave the interest_rate as 0.03 and add parentheses around the exponent, you get the expected value.

    from math import e
interest_rate = 0.03 #risk free-rate is 3%
spot_price = 40 
time = 30/360 #there is 30 days remaining
forward_price = spot_price * e ** (interest_rate * time) 
print(forward_price)