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Explain why the value of the contract changes despite no change in underlying credit conditions.

Explain why the value of the contract changes despite no change in underlying credit conditions.

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Answer #1

Value of contract will be changing even if there are no changes in the underlying credit condition because value of contract will be exposed to various kinds of macro factors and these macro factors are to be adjusted accordingly because value of contract will not just be dependent upon the underlying prices at which the contract is entered that but it will be continuously exposed to the changes in the interest rates and the inflation and other cash flow changes so it can be said that it is exposed to the systematic risk to a large extent and hence the value of the contract will be keeping on fluctuating due to changes in the Macro factors which can never be controlled by anyone so these macro factors will be leading to change in the value of the contracts and evenif the conditions and terms are not changing, the overall value of contract is changing due to the systematic factors

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