Question
1. Assuming again that you left your futures position open and assuming that there was no intra-daily marking to market (intra-day marking to market would
1. Assuming again that you left your futures position open and assuming that there was no intra-daily marking to market (intra-day marking to market would only happen on an extremely volatile day, which was not the case on October 6h, 2016), please detail all your cash-flows on October 6th.
2. Assume that crude oil storage costs at the time were $0.25 per barrel per week (on land). Suppose that the spot price of crude oil was $47.5 per barrel on October 6th, 2017. Suppose that the annualized 2-week dollar LIBOR (risk-free interest rate) that same day was 1.04%, while the prime rate at which speculators (e.g., hedge funds) can borrow was 2.08%. Given this information, was there a convenience yield on October 6th? If so, explain and show your work. If not, explain why not and show how you would arbitrage the price difference. Show your work. Hint: the price of a 2-week crude oil forward would be the same as the settlement price for the November 2017 futures contract (which is set to mature on October 20th, 2017, i.e., 2 weeks later than October 6th, 2017).
Suppose that we are on Friday October 6, 2017. Consider the following term structure of futures prices and trading data for WTI light sweet crude oil futures contracts on the NYMEX (actual data from 3 years ago). 10-06-2017 Session Overview Month Low Settle 48.84 Chg 2.58 Open 46.2 High 49.08 Volume 410,852 Open Interest 424,445 Nov '17 45.73 Dec 17 49.32 2.57 46.74 49.58 46.26 145,287 297,083 Jan '18 50.01 2.54 47.44 50.19 46.99 44,674 124,095 Feb '18 50.6 2.48 48.21 50.69 47.74 19,768 80,516 Mar '18 51.21 2.49 48.75 51.3 48.38 38,491 113,184 Apr '18 51.59 2.39 49.35 51.6 48.98 10,257 36,995 May '18 51.91 2.31 49.33 52 49.33 7,126 27,004 Jun '18 52.18 2.26 50.05 52.26 49.5 37,415 109,217 Jul '18 52.32 2.15 50.54 52.39 50.54 5,443 26,808 Important information on contract specifications: (i) All prices are quoted in US dollars per barrel; The contract size is 1,000 barrels of crude oil; Those contracts are commodity settled. The November 2017 contract required delivery on Friday the 20th of October, 2017. (iii) (iv) Suppose that we are on Friday October 6, 2017. Consider the following term structure of futures prices and trading data for WTI light sweet crude oil futures contracts on the NYMEX (actual data from 3 years ago). 10-06-2017 Session Overview Month Low Settle 48.84 Chg 2.58 Open 46.2 High 49.08 Volume 410,852 Open Interest 424,445 Nov '17 45.73 Dec 17 49.32 2.57 46.74 49.58 46.26 145,287 297,083 Jan '18 50.01 2.54 47.44 50.19 46.99 44,674 124,095 Feb '18 50.6 2.48 48.21 50.69 47.74 19,768 80,516 Mar '18 51.21 2.49 48.75 51.3 48.38 38,491 113,184 Apr '18 51.59 2.39 49.35 51.6 48.98 10,257 36,995 May '18 51.91 2.31 49.33 52 49.33 7,126 27,004 Jun '18 52.18 2.26 50.05 52.26 49.5 37,415 109,217 Jul '18 52.32 2.15 50.54 52.39 50.54 5,443 26,808 Important information on contract specifications: (i) All prices are quoted in US dollars per barrel; The contract size is 1,000 barrels of crude oil; Those contracts are commodity settled. The November 2017 contract required delivery on Friday the 20th of October, 2017. (iii) (iv)Step by Step Solution
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