FNCE30007 Lecture Notes - Lecture 10: Ipstones, Arbitrage
27 Jun 2018
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WEEK11SUMMARY FORWARDS AFUTURES
I
keyPoints
the
FSert Other Forward Howie
Notdependent onfuture
frothmienor
expected
value Formula
Purely
determined
byopportunitycortlarbitrage Bound
Forward
Prices
Baris Valuing anesaitingforward
addinginmkt
frictionslikedifferentratesfor Formulallangarhort
baidu.ngumganamg.mn amactiancatsYgngqingamyyieea
Anyforwardprice btwthetrobounds is FuturesMarkets
possible Acannot beexploitedforumefrofit structure
calculateusingpayofftables Margins
Differencesbtwborrowingalending rates dstandardisation
transaction costswiden the range
of Deliveryoptions
no arbitrageforward
prices
Valuinganfsuitingforwarde
Jeong 5Foxt fame_Foe stt
att PVofforward
price art
Canaho calculate thisfrom
payofftables
bonvenienceyieldJ
some assets give benefitsofownership leg dividends
This canninflybeaddedinhffrayofftable
same result as afittions sPhair
ofdividends are accentantrateoftherfrotfinice then we can me
FSenor't where qis the dir rate
Cortofcarrye
someassets are costly to hold
There are like anegative dividend Aranaholaritybeadded
to payofftables stpucorts
qthecatsane aconstant rateofthespatfinice then wecomme
Fselrtu'T where uis the cost rate
FutunesMarkets
structure
Fane exchangetradedcontracts CLEANING
tradedanonymously on an exchange LONG House SHORT
clearinghoureas the middleman
At expiration thefollowingtransferoccurs
PAYS carht RECEIVES PAYS carhes RELIEVES
TONG SHORT
FUTURES FUTURES
ICLEARINGHOUSEI
RECEIVES good DELIVERS RECEIVERgood DELIVERS
Document Summary
Differencesbtw borrowingalending rates d transaction costs widen the rangeof no arbitrage forwardprices amactiancatsygngqingamyyieea. Canaho calculate thisfrompayofftables bonvenienceyieldj some assets give benefitsofownership leg dividends. This canninflybeaddedinhffrayofftable ofdividends are accentantrateoftherfrotfinice then we can me some assets are costly to hold. There are like a negative dividend aranaholaritybeadded to payofftables stpucorts constant qthecatsane a. F selrtu"t where u is the cost rate same result as afittions s phair. F senor"t where q is the dir rateofthespatfinice then wecomme. Fane exchangetradedcontracts tradedanonymously on an exchange long clearinghoureas the middleman. Deductlanesfrom a add gains to eachtrader"saccount day daily mark to market ofthe marginaccountfallsbelowa maintenancemarginlevel. Trader receives amargin call 1 mint topufimargin account ofthetraderfailsto meetthe call the clearinghouse submits a market order ontrader"sbehalf toclose out theirposition at openingofneatday. Priceused todetermine endof day mark to market cashflows is termed the settlementprice choreofeach htandardination anonymoustradingoffutures is facilitatedthroughstandardised deliveryperiods delivery locations quantity quality.
