Assume the three security market assets S1 and S2, and the riskless bond B with continuously compounded rate r. A Swap contract calls for the following: The buyer X pays the seller Y an amount q to enter into the contract at time t = 0 The seller agrees to exchange one unit of asset S1 for one unit of asset S2 at time t = T .

The share prices of assets S1 and S2 at times t = 0 are S1(0) and S2(0). The share prices of the assets at time t = T are S1(T) and S2(T) respectively. Determine the fair market value q of the contract in two ways: by an arbitrage argument using the Fundamental Theorem