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Forward curve
A snapshot of where market participants are currently willing to
transact
Either market-observed or derived based on arbitrage relationships
between prices and rationality bounds.
The market is always right. The whole exercise of the forward curve
is to portray where the market is.
Information is not as useful for planning purposes.
Used for marking positions to market and determining liquidation
value.
Forward prices can be locked in today.
Can be used for deal pricing, to the extent that one expects to
offset exposure shortly in the open market.
Uniform for all market participants.
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Price forecast
A prediction of what might happen in the future
Based on economic/engineering analyses of future supply and demand,
regulatory and technological trends, etc.
The market can be wrong. To the extent that the forecaster believes
that he/she has better information than the other market participants,
such information can be used to "beat the market."
Information is useful for planning purposes.
Should not be used for mark-to-market purposes.
Price forecasts may not be locked in today.
Can be used for deal pricing, to the extent that one does not look
for an offset but uses the transaction as a bet on future prices.
Each market participant may have a different forecast. |