Extendible Forward
Extendibility is a feature that can be added to any strate
Last updated
Extendibility is a feature that can be added to any strate
Last updated
An Extendible Forward is a forward contract with the potential to be renewed for one or more expiries if the final spot rate ends above (or below) a pre-specified barrier. Variations of the extension test condition may position the extension test date at an earlier point in time. This would enable the hedging counterparty to know on that date whether or not the forward will extend into the second period.
At expiry if EURUSD fixes:
Above the Strike, the client is fully protected at the Strike on 100% of the Notional.
Below the Strike, the client will find itself obligated to trade at the Strike level on 100% of the Notional.
On the Extension Test Date, if EURUSD is below the Extension Test Rate, the strategy will continue for a second period (the "Extension Period"); otherwise, it will not and the client will be unhedged for that second period.
