“...the relationship between futures price and expected future
spot price of an underlying asset depends on...
“...the relationship between futures price and expected future
spot price of an underlying asset depends on the systematic risk of
the underlying asset...” Critically evaluate this statement and
support your answer mathematically
An asset is selling for $250. A Futures contract with the asset
as underlying, expires in 8 months (assume 365 day year). Interest
rates are 5% per annum and the future value of cost of carry has
been calculated to be $5.35 and is net any convenience yield earned
over the time period.
(A) Calculate the arbitrage free futures price.
(B) A month has passed; the contract expires in 7 months. The
asset sells for $239, and net cost of...
We also discussed that the difference between a spot price and a
futures price (i.e. the basis) for storable commodities should be
given primarily by cost of carry and transportation cost. Let us
say that the spot price for corn in Lincoln is $3.45/bu, while the
futures price for May delivery is $3.82/bu. Now let us assume that
the cost of carry is $0.03/bu/month, while the transportation cost
between Lincoln and the delivery area of the futures market is
$0.20/bu....
1. Briefly explain the difference between the underlying asset
and the exercise price of the option.
2. Distinguish the following option scenarios with respect to
intrinsic value: In the money, At the money and Out of
the money.
3. Briefly explain two main option pricing/valuation models,
namely, Black-Scholes model and Binomial model, respectively.
4. Compare and contrast securitization and credit
derivatives.
On March 1 the spot price of a commodity is $20.00 and the July
futures price is $18.75. On June 1 the spot price is $24.10 and the
July futures price is $23.50. A company entered into a futures
contracts on March 1 to hedge the purchase of the commodity on June
1. It closed out its position on June 1. What is the effective
price paid by the company for the commodity?
Suppose that the current spot rate between dollar and pound is
1.5 $/£, and the expected future spot rate in 12 months is 1.48
$/£. If the 1-year interest rate of U.K. treasury bonds is 8%, then
the net rate of return on the U.K. bond investment in terms of
dollar (%) is roughly _________, according to the uncovered
interest rate parity approximation.Select one:a. 9.35%b. 8%c. 6.67%d. 3.35%If Peru inflation is 6 % while the U.K. inflation is 2 %...
The spot price of a certain asset is S0 = $50400 And the price
for a six months maturity future over such underlying asset is F=
$53550
a) Compute the risk free rate (continuous compounding).
b) Combine the spot and the future markets so as to replicate
debt. Your wealth is $ 50,400,000, show two strategies that:
Invest purchasing both, the underlying asset and bonds.
Invest purchasing only the underlying asset and borrowing
money.
(Hint: File called “Options...
Identify or define each of the following terms.
a) The difference between futures price and
expected spot price in the future
b) The contract size of ethanol futures traded
on Chicago Mercantile Exchange=?
c) Swap bank
d) Long position in put
e) The minimum value (lower bound) of American
call, assuming no dividend=
On the 1st of March, a commodity’s spot price is $60 and its
futures contract price with maturity in August is $59.
On the 1st of July, the commodity spot price is $64 and its
futures contract price with maturity in August is $63.50. A company
entered into the futures contracts on 1st of March to hedge its
purchase of the commodity on July 1. It closed out its position on
July 1.
What is the effective price (after taking...
Suppose the futures price is $2.00, and spot price is $1.90. The
interest rate is 3%, and cost of the storage is 1%. The future
contract matures in 9 months. Calculate the convenience yield.
Explain the possible reasons behind the calculated convenience
yield.
Assume the current spot price of a Bitcoin is $11,270 and the
future price on a March 2018 contract is $11,420 per Bitcoin. You
enter into 3 long future contracts today (1/29/18), and each
contract is for 5 Bitcoins. Your initial margin is $5,000 per
contract and your margin call occurs at $3,500 per contract.
Date Price
1/29/18 11,310
1/30/18 11,460
1/31/18 11,600
2/1/18 11,410
2/2/18 11,150
2/5/18 10,900
2/6/18 10,990
2/7/18 10,790
What does your margin account have in...