Assume you have $1mio in capital. Demonstrate there is no arbitrage be-tween the spot and futures prices written on the chosen asset for a 1-year historical period. Be sure to incorporate all the real-world frictions that would arise if you were implementing the arbitrage such as interest rates,storage, insurance,transportation costs, natural disasters, theft, fraud, etc. I will provide the spot and futures data, you have to source the model and inputs.

Turn in a report which contains the following:

1. Describe the forwards/futures pricing model that is appropriate for the asset you select. This could be formulas 1, 2, or 3 above, or some variation of these.

2. Clearly outline the arbitrage strategy, and show the payoffs for one sample trade (Note, you are executing 4 individual trades that each last for 3months, for the period 3/31/19-3/31/20). State how large your trades will be, being mindful of the practical limits (i.e. you only have $1mioin capital). Recall a 5% capital reserve is required to enter into a futures contract.

3. Track the growth of your $1mio in capital. Show your returns by quarter for the entire year in tabular format and for the entire period using an equity curve (https://www.investopedia.com/terms/e/equity-curve.asp).Also, compute the volatility and Sharpe ratio of this arbitrage strategy.

Historical data for currency futures on the Indian rupee versus the USD are below.

	USD/INR spot rate	3-month futures
3/31/19	69.18	70.28
6/30/19	69.04	69.8
9/30/10	70.88	71.61
12/31/19	71.39	72.02
3/31/20	76.10	78.35