Deck 2 – Forward vs Contingent Claims

Why do standard swaps typically have zero value at initiation?

The swap rate is set so initial value equals zero.

In a forward contract, what does the long position commit to do?

Buy the underlying at the predetermined forward price.

At expiration, what payoff expression identifies a long put option?

$\max (0,X-S_T)$.

If $S_T>F_0(T)$, which side of a forward gains at expiration?

The long gains.