Question
The S&R index spot price is 1100, the risk-free rate is 5% (continuously compounded), and the dividend yield on the index is 0. (a) Suppose
The S&R index spot price is 1100, the risk-free rate is 5% (continuously compounded), and the dividend yield on the index is 0.
(a) Suppose you observe a 6-month futures price of 1135. What arbitrage would you undertake? Please use the table of cash flow to analyze.
(b)Suppose you observe a 6-month futures price of 1115. What arbitrage would you undertake? Please use the table of cash flow to analyze.
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Derivatives Markets
Authors: Rober L. Macdonald
4th edition
321543084, 978-0321543080
