Pricing Treasury Bond Futures: In class we discussed that determining the theoretical futures price is hard due to several reasons. Name at least two reasons why this is the case. When providing each reason, explain how this optionality influences the theoretical futures price. Now assume that there are no complications that you named. Prove formula (1) below: Treasury Bond Futures Price Let Pc(t,T) denote the current spot price of the c-coupon bond with payment frequency n per year. Then the treasury bond futures price denote by Fp,c(t,T,T) with settlement date T is given by Fp,c(t,T,T)=Z(t,T)(Pc(t,T)I(t,T)) where I(t,T):=i=1mncZ(t,Ti) with tT1TiTm=T denotes the present value of coupon payments during the lifetime of the futures contract. Pricing Treasury Bond Futures: In class we discussed that determining the theoretical futures price is hard due to several reasons. Name at least two reasons why this is the case. When providing each reason, explain how this optionality influences the theoretical futures price. Now assume that there are no complications that you named. Prove formula (1) below: Treasury Bond Futures Price Let Pc(t,T) denote the current spot price of the c-coupon bond with payment frequency n per year. Then the treasury bond futures price denote by Fp,c(t,T,T) with settlement date T is given by Fp,c(t,T,T)=Z(t,T)(Pc(t,T)I(t,T)) where I(t,T):=i=1mncZ(t,Ti) with tT1TiTm=T denotes the present value of coupon payments during the lifetime of the futures contract