Convergence


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Convergence

The movement of the price of a futures contract toward the price of the underlying cash commodity. At the start, the contract price is usually higher because of time value. But as the contract nears expiration, and time value decreases, the futures price and the cash price converge. More generally, convergence trading involves taking two related assets that have different prices with the expectation that prices will converge (the cheaper asset is purchased and the more expensive is sold short).

Convergence

The fact that the futures price and the spot price for a given asset approach one another as a futures contract on that asset approaches maturity. At maturity, the two prices should be equal. The existence of convergence is the basis for the theory that forward rates equal future spot rates, though this idea is more controversial.

convergence

The process by which the futures price and the cash price of an underlying asset approach one another as delivery date nears. The futures and cash prices should be equal on the delivery date.
References in periodicals archive ?
The IASB and FASB have taken a flexible approach to convergence and are focusing on issuing standards of the highest quality possible, regardless of where the principles underlying them originated.
The architectures developed for this effort were, in many cases, the first joint views of how C2 and SA are exchanged currently and how they could be exchanged after convergence at tactical echelons.
And cellular phone, PDA and other small equipment manufacturers are adding functions to their devices that enable them to do everything--viewing as well as producing photographs and videos--that broadband convergence is currently expected to deliver.
In contrast: ERM II is a meaningful policy framework in its own right and should be seen as a convergence instrument.
The accounting profession in each country, for example, must not stand on the sidelines; it must play its appropriate roles in moving convergence forward and assisting governments and standard-setters in formulating and enacting convergence plans.
Short-Term Convergence Project The scope of the short-term convergence project is limited to those differneces in which convergence around a high-quality solution appears achievable in the short-term.

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