|
PureBytes Links
Trading Reference Links
|
Carroll:
I did not intend to say that Fair Value that any one firm publishes is the
"correct" value. In reality, based on what the instructors from the CME
have told me, there is not such thing as "one correct Fair Value". Fair
Value is calculated by different firms, using different interest rates, and
other inputs, based on what they are trying to accomplish in their use of
Fair Value. Therefore, Fair Value is in the eye of the user, and may differ
for other users.
David
----- Original Message -----
From: "Carroll Slemaker" <cslemaker1@xxxxxxxx>
To: "Bob Fulks" <bfulks@xxxxxxxxxxxx>
Cc: "David J. Slavik" <djstrade@xxxxxxxxxxxxxx>; "Philip Nixon (24-7)"
<pnixon@xxxxxxxxxxxxxxxx>; "Omega-list" <omega-list@xxxxxxxxxx>
Sent: Wednesday, August 02, 2000 6:17 PM
Subject: Re: S&P fair value
> Bob certainly is correct with respect to how fair value should be
> calculated:
> interest at the "risk-free" rate calculated on the current cash index
(SPX)
> for the number of days remaining to expiration, minus the estimated S&P
> dividends (expressed in index points) expected to be paid from the current
> date till contract expiration.
>
> Bloomberg apparently uses, as their "risk-free rate", some combination of
> the 90-day T-Bill and Eurodollar rates; for the dividend figure, they use
> an actual estimate of the dividends expected over the time period.
>
> What I said about the two Web sites still stands, however: their value is
> significantly different from that published by Bloomberg, and I cannot
come
> even close to their value using any reasonable interest rate and dividend
> figure. (Their value of 10.38 implies an interest rate of 7.45%.)
>
> Regards,
> Carroll
>
>
> ----- Original Message -----
> From: "Bob Fulks" <bfulks@xxxxxxxxxxxx>
> To: "Carroll Slemaker" <cslemaker1@xxxxxxxx>
> Cc: "David J. Slavik" <djstrade@xxxxxxxxxxxxxx>; "Philip Nixon (24-7)"
> <pnixon@xxxxxxxxxxxxxxxx>; "Omega-list" <omega-list@xxxxxxxxxx>
> Sent: Wednesday, August 02, 2000 3:15 PM
> Subject: Re: S&P fair value
>
>
>
> > Fair Value is equal to the value of the S&P 500 Index, plus interest
> > until the contract expiration, minus the dividends you would have
> > gotten on the S&P 500 stocks. Premium is the difference between the
> > Fair Value and the Index. The TV usually reports the premium and
> > calls it the Fair Value.
> >
> > The interest term is pretty consistent but the dividend term can
> > vary. Most people just prorate the average dividends over time while
> > others may figure the actual timing of the dividends in their
> > calculations. The latter is obviously more accurate if you are
> > looking for arbitrage opportunities.
> >
> > If you are comparing the Fair Value with the Index at the close of
> > the day you get an additional variable. Since the stock market closes
> > at 4:00 PM and the futures market closes at 4:15 PM (Eastern time), a
> > lot can happen in those 15 minutes. This introduces a third term. And
> > remember that the official closing price is not the value of the last
> > tick, making things even more difficult.
> >
> > Bob Fulks
> >
> >
>
>
|