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Prove equation #3 by the technique of Arbitrage. Your proof should be clear to the point. It should not contain any unnecessary steps. In math
Prove equation #3 by the technique of Arbitrage.
Your proof should be clear to the point. It should not contain any unnecessary steps. In math terms it should be eloquent.
Simply show that your Arbitrage has no investment and has a positive profit for sure.
tFt - Future price
St - spot price
tRtL - lending price
tDt - dividend
II. Commodities with Possibly Negative Cost of Carry (eg. Stocks, Bonds, Foreign Exchange) 2) F, SS, (1+,r," ) - D, Proof by Cash & Carry Arbitrage 3) F, S. (1+ r1") - D Proof by Cash & Carry Arbitrage 4) S. (1+ r1')-DS.F, SS. (1+ r ) - D from 2) & 3) 5) F, = S. (1+ IT) - D = S, +S(-d) for r = r = 11 II. Commodities with Possibly Negative Cost of Carry (eg. Stocks, Bonds, Foreign Exchange) 2) F, SS, (1+,r," ) - D, Proof by Cash & Carry Arbitrage 3) F, S. (1+ r1") - D Proof by Cash & Carry Arbitrage 4) S. (1+ r1')-DS.F, SS. (1+ r ) - D from 2) & 3) 5) F, = S. (1+ IT) - D = S, +S(-d) for r = r = 11Step by Step Solution
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