Question
Using market information as of the close of Tuesday, August 30 (see WSJ online), address the following questions regarding the Platinum futures contract, which is
Using market information as of the close of Tuesday, August 30 (see WSJ online), address the following questions regarding the Platinum futures contract, which is listed on the CME Group futures exchange.
Assume the Platinum, Engelhard industrial bullion" price is a reasonable proxy for the spot (cash) price.
Assume that the maturity date of this futures is the 3rd last business day of the maturity month. Of the various Libor maturities reported (e.g., 1, 3, 6, or 12 months) use the maturity most closely matching that of the futures maturity date--but when computing the financing cost please be sure to use an actual day count and a 360-day year (i.e., use the Actual/360 day count convention). Also, assume warehousing and delivery costs are negligible and ignore for now convenience yields and leasing opportunities.
(A) Determine the theoretical futures price ($ per ounce) for the January 2023 Platinum futures contract. (Hint: the 3-month Libor rate is probably the closest in maturity.)
(B) i) Compare the actual reported futures price to your answer in (A); and ii) If the actual and theoretical futures prices differ, explicitly detail the steps for conducting an arbitrage and compute the potential arbitrage profit (per ounce).
(C) Discuss factors that could potentially explain how an "apparent" arbitrage opportunity may have arisen in part B.
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