Suppose that F and F are two futures contracts on the same commodity with times to maturity,
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Suppose that F and F are two futures contracts on the same commodity with times to maturity, and 2, where >. Prove that F day to the next was calculated as the geometric average of the changes in the prices of the stocks underlying the index. In these circumstances, does equation (5.8) correctly relate the futures price of the index to its cash price? If not, does the equation overstate or understate the futures price?
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