1. Given the risk-neutral process of a non-tradable market index as, dS where (t) and (t) are functions of time. Assume also that risk-free interest rate r is constant and flat. (a) Use risk-neutral pricing to determine the futures price Krof the index with maturity at T. HintMaturity payoff of a futures contract is defined as FT ST-KT, where Kr is the futures delivery price defined at current time. It should be noted that current value of a futures contract is zero for which there is no cost on both sides in entering the agreement. For nonstochastic integrand g(s), Ito's integral S g(s)dz, is random normal with zero mean and variance s, (g(s)ds. ) 1. Given the risk-neutral process of a non-tradable market index as, dS where (t) and (t) are functions of time. Assume also that risk-free interest rate r is constant and flat. (a) Use risk-neutral pricing to determine the futures price Krof the index with maturity at T. HintMaturity payoff of a futures contract is defined as FT ST-KT, where Kr is the futures delivery price defined at current time. It should be noted that current value of a futures contract is zero for which there is no cost on both sides in entering the agreement. For nonstochastic integrand g(s), Ito's integral S g(s)dz, is random normal with zero mean and variance s, (g(s)ds. )