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Before being delisted in 2011, one of the most famous, if least traded, derivatives was the iconic pork belly futures contract, devised to help meat

  1. Before being delisted in 2011, one of the most famous, if least traded, derivatives was the iconic pork belly futures contract, devised to help meat packers reconcile volatility in hog prices with the seasonal variations in demand for bacon. Although now relegated to a footnote in history, pork belly futures represent perhaps the most striking intersection between the high tech, big money world of nance and the everyday needs of the average consumer.
image text in transcribed Suppose that Becky buys futures contracts for 40,000 pounds of frozen pork bellies from Stan, maturing 20 days from now, at a price of 1 per pound. Both the are required to post initial margins of 2000 and maintain a value of at least 1500 . If a margin account falls below the maintenance requirement, the trader is subjected to a margin call and must bring the value of the account back up to 2000. (a) (10) Suppose that the futures price followed a random walk, where logFt+1t+1=logFt+t+1N(0,0.02) Simulate the movements of the futures price until maturity and plot the price chart. (b) (10) Find the value of Becky's and Stan's margin accounts at the beginning and end of each day

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