Future Value

Future value is the value of an asset or cash amount at a specific date in the future, based on an assumed rate of return. It measures how much an investment made today will grow over time through the power of compounding.

In the context of derivatives, future value calculations help traders estimate the potential payoff of a strategy. By projecting the growth of an asset, traders can determine if an option's current premium reflects the expected future value.

It is the direct mirror image of present value and is crucial for calculating the required returns for any investment. Understanding future value is key to long-term financial planning.