Consider a variable that is not an interest rate:

(a) In what world is the futures price of the variable a martingale?

(b) In what world is the forward price of the variable a martingale?

(c) Defining variables as necessary, derive an expression for the difference between the drift of the futures price and the drift of the forward price in the traditional risk- neutral world.

(d) Show that your result is consistent with the points made in Section 5.8 about the circumstances when the futures price is above the forward price.

AppendixLO1