Pricing Stock Index Futures

Equity Index Futures are a type of futures contracts that try to replicate the performance of an equity index such as S&P, FTSE, or ay other index. Buyers can invest in a basket of equities without trading the individual stocks.

These contracts are used to hedge against an existing equity position for for speculation.

The pricing of stock index futures is performed in the same formulaic manner as presented earlier in the futures section.

Equity Index Futures Price: f0(T) = [S0 - PV(CF)](1+r)T

Equity Index Futures Price (alternative formula): f0(T) = S0(1+r)T - FV(CF)

  • CF = Dividend expected to be paid during the remaining life of the contract term
  • S0 = Spot price of the equity index