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Suppose that a continuous-time compounding framework is used with a fixed interest rate r. Suppose that the carrying charge per unit of time is proportional
Suppose that a continuous-time compounding framework is used with a fixed interest rate r. Suppose that the carrying charge per unit of time is proportional to the spot price; that is, the charge is q*S(t). Show that the theoretical forward price of a contract with delivery date T is: P = S*exp((r-q)*T)
fixed interest rate = r
S(t) = spot price
q = multiplier of spot price to get charge
T = delivery date
4. (Continuous-time carrying charges Supposc that a conti compounding rme work is used with a fixed interest rate?Suppose that tie carrying charge per unit of time is proportional to the spot price; a is, he chaige is qS) Show that the theoretieal forward price ot a conact with delivery date T is 4. (Continuous-time carrying charges Supposc that a conti compounding rme work is used with a fixed interest rate?Suppose that tie carrying charge per unit of time is proportional to the spot price; a is, he chaige is qS) Show that the theoretieal forward price ot a conact with delivery date T isStep by Step Solution
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