Estimating the value of foreign exchange pro-rata (Multiple fixing) forward
Post by MSF Chula at Tuesday, 8 August 2017 10:35 AM

Foreign Exchange Pro-rata forward is well-known for Thai Foreign Exchange Market. The forward contract allows settlement early before maturity of the forward. The exchange rate will be calculated on actual settlement date by using Pro-Rate. Bank of Thailand recommended considering recognition provision of FX Pro-rata forward. The foreign exchange pro-rata forward contracts have option embedded in forward because holder has right to delivery in during between start date and maturity date. The purpose of this paper is to estimate the value of foreign exchange Pro-rata forward and calculate the 5th percentiles to find how much reserve which bank should have for this product contract. This paper found behavior of customers who do early-taken up. For buyers who buy forward contract, if the downward sloping curve gets steeper buyers prefer to do early-taken up sooner. For sellers who sell forward contract, if the upward sloping curve gets steeper sellers prefer to do early-taken up sooner.

Last updated at Tuesday, 8 August 2017 10:35 AM