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Tailing factor & Spot-futures parity Suppose the current spot price is $3. With 50% of the probability, the spot price will increase or decrease by

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Tailing factor & Spot-futures parity

Suppose the current spot price is $3. With 50% of the probability, the spot price will increase or decrease by $1 for the first year and then remains the same as shown in the graph below.

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