Problem Note 43049: PM_FORWARD calculates forward contract value incorrectly when MARGINING_VARIATION_RT is not equal to 0
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In SAS® Risk Management for Banking and SAS® Risk Management for Insurance, the MARGIN_VARIATION_RT in the FINANCIAL_EXPOSURE data set specifies the margining rate to use in the valuation of forward contracts. A contract that is not purchased on margin uses a MARGIN_VARIATION_RT of zero, and in this case PM_FORWARD calculates the forward value correctly. However, for contracts purchased on margin (that is, where MARGIN_VARIATION_RT is not equal to zero), the forward value computed by PM_FORWARD is incorrect.
The correct calculation for the value of a long forward, taking margining into consideration, is (ignoring cost-of-carry, dividend, or yield):
In this formula, f is the contract value, S is today's spot price, K is the delivery price for the contract, T is the contract date of delivery, r is the T-year risk-free rate, and MVR is the value of MARGIN_VARIATION_RT.
PM_FORWARD uses this calculation, which is incorrect:
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Operating System and Release Information
| Product Family | Product | System | Product Release | SAS Release | ||
| Reported | Fixed* | Reported | Fixed* | |||
| SAS System | SAS Risk Management for Banking | Microsoft® Windows® for x64 | 3.1 | 3.11 | 9.3 TS1M0 | |
| Microsoft Windows Server 2003 Datacenter Edition | 3.1 | 3.11 | 9.3 TS1M0 | |||
| Microsoft Windows Server 2003 Enterprise Edition | 3.1 | 3.11 | 9.3 TS1M0 | |||
| Microsoft Windows Server 2003 Standard Edition | 3.1 | 3.11 | 9.3 TS1M0 | |||
| Microsoft Windows Server 2003 for x64 | 3.1 | 3.11 | 9.3 TS1M0 | |||
| Microsoft Windows Server 2008 | 3.1 | 3.11 | 9.3 TS1M0 | |||
| Microsoft Windows Server 2008 for x64 | 3.1 | 3.11 | 9.3 TS1M0 | |||
| Microsoft Windows XP Professional | 3.1 | 3.11 | 9.3 TS1M0 | |||
| Windows 7 Enterprise 32 bit | 3.1 | 3.11 | 9.3 TS1M0 | |||
| Windows 7 Enterprise x64 | 3.1 | 3.11 | 9.3 TS1M0 | |||
| Windows 7 Home Premium 32 bit | 3.1 | 3.11 | 9.3 TS1M0 | |||
| Windows 7 Home Premium x64 | 3.1 | 3.11 | 9.3 TS1M0 | |||
| Windows 7 Professional 32 bit | 3.1 | 3.11 | 9.3 TS1M0 | |||
| Windows 7 Professional x64 | 3.1 | 3.11 | 9.3 TS1M0 | |||
| Windows 7 Ultimate 32 bit | 3.1 | 3.11 | 9.3 TS1M0 | |||
| Windows 7 Ultimate x64 | 3.1 | 3.11 | 9.3 TS1M0 | |||
| Windows Vista | 3.1 | 3.11 | 9.3 TS1M0 | |||
| Windows Vista for x64 | 3.1 | 3.11 | 9.3 TS1M0 | |||
| 64-bit Enabled AIX | 3.1 | 3.11 | 9.3 TS1M0 | |||
| 64-bit Enabled HP-UX | 3.1 | 3.11 | 9.3 TS1M0 | |||
| 64-bit Enabled Solaris | 3.1 | 3.11 | 9.3 TS1M0 | |||
| HP-UX IPF | 3.1 | 3.11 | 9.3 TS1M0 | |||
| Linux | 3.1 | 3.11 | 9.3 TS1M0 | |||
| Linux for x64 | 3.1 | 3.11 | 9.3 TS1M0 | |||
| Solaris for x64 | 3.1 | 3.11 | 9.3 TS1M0 | |||
| SAS System | SAS Risk Management for Insurance | Microsoft® Windows® for x64 | 2.1 | 2.1_M1 | 9.2 TS2M3 | |
| Microsoft Windows Server 2003 Datacenter Edition | 2.1 | 2.1_M1 | 9.2 TS2M3 | |||
| Microsoft Windows Server 2003 Enterprise Edition | 2.1 | 2.1_M1 | 9.2 TS2M3 | |||
| Microsoft Windows Server 2003 Standard Edition | 2.1 | 2.1_M1 | 9.2 TS2M3 | |||
| Microsoft Windows Server 2003 for x64 | 2.1 | 2.1_M1 | 9.2 TS2M3 | |||
| Microsoft Windows Server 2008 | 2.1 | 2.1_M1 | 9.2 TS2M3 | |||
| Microsoft Windows Server 2008 for x64 | 2.1 | 2.1_M1 | 9.2 TS2M3 | |||
| Microsoft Windows XP Professional | 2.1 | 2.1_M1 | 9.2 TS2M3 | |||
| Windows 7 Enterprise 32 bit | 2.1 | 2.1_M1 | 9.2 TS2M3 | |||
| Windows 7 Enterprise x64 | 2.1 | 2.1_M1 | 9.2 TS2M3 | |||
| Windows 7 Home Premium 32 bit | 2.1 | 2.1_M1 | 9.2 TS2M3 | |||
| Windows 7 Home Premium x64 | 2.1 | 2.1_M1 | 9.2 TS2M3 | |||
| Windows 7 Professional 32 bit | 2.1 | 2.1_M1 | 9.2 TS2M3 | |||
| Windows 7 Professional x64 | 2.1 | 2.1_M1 | 9.2 TS2M3 | |||
| Windows 7 Ultimate 32 bit | 2.1 | 2.1_M1 | 9.2 TS2M3 | |||
| Windows 7 Ultimate x64 | 2.1 | 2.1_M1 | 9.2 TS2M3 | |||
| Windows Vista | 2.1 | 2.1_M1 | 9.2 TS2M3 | |||
| Windows Vista for x64 | 2.1 | 2.1_M1 | 9.2 TS2M3 | |||
| 64-bit Enabled AIX | 2.1 | 2.1_M1 | 9.2 TS2M3 | |||
| 64-bit Enabled HP-UX | 2.1 | 2.1_M1 | 9.2 TS2M3 | |||
| 64-bit Enabled Solaris | 2.1 | 2.1_M1 | 9.2 TS2M3 | |||
| HP-UX IPF | 2.1 | 2.1_M1 | 9.2 TS2M3 | |||
| Linux | 2.1 | 2.1_M1 | 9.2 TS2M3 | |||
| Linux for x64 | 2.1 | 2.1_M1 | 9.2 TS2M3 | |||
| Solaris for x64 | 2.1 | 2.1_M1 | 9.2 TS2M3 | |||