Question 1 A risk-free asset with constant interest rate r and a risky asset with price process St are traded in a market. Consider a forward contract written on the risky asset with expiry T and strike price K. (i) What is the value of the forward contract for the long side evaluated at time t before expiry? Now consider the futures contract with the same underlying asset and expiry as above. Suppose the gain/loss of contract will be settled at time it for i=0,1,n, where n is an integer and t=T. (ii) What is the value (for the long side) of the futures contract at time t immediately before resetting of the strike price? (Notice that this value is the gain/loss for the long side, which will be settled at time t via the exchange). (iii) Denote Xt as the payoff from the futures contract (for the long side) at time t for t=it,i=1,,n. What is the price of Xt evaluated at time 0 ? (iv) If saving all gains/losses in the risk-free asset until T, what is the total gain/loss at time T in the risk-free asset? (v) What is the price of the total gain/loss in (ii) at time 0 ? Question 1 A risk-free asset with constant interest rate r and a risky asset with price process St are traded in a market. Consider a forward contract written on the risky asset with expiry T and strike price K. (i) What is the value of the forward contract for the long side evaluated at time t before expiry? Now consider the futures contract with the same underlying asset and expiry as above. Suppose the gain/loss of contract will be settled at time it for i=0,1,n, where n is an integer and t=T. (ii) What is the value (for the long side) of the futures contract at time t immediately before resetting of the strike price? (Notice that this value is the gain/loss for the long side, which will be settled at time t via the exchange). (iii) Denote Xt as the payoff from the futures contract (for the long side) at time t for t=it,i=1,,n. What is the price of Xt evaluated at time 0 ? (iv) If saving all gains/losses in the risk-free asset until T, what is the total gain/loss at time T in the risk-free asset? (v) What is the price of the total gain/loss in (ii) at time 0