MATBUS470 Lecture Notes - Lecture 17: Pearson Plc, Futures Contract, Spot Contract
Document Summary
Since the portfolio is riskless , our wealth should change by risk free interest on the porfolio. Referred to by the matuirty , month of the underlying futures contract. American option which expires on or a few days before the earliest delivery date. Consider a call option on copper futures with a stirk price of 240 cents per lb. Each contract is on 25000lbs,suppose the option is exercised when the futures price is 251 cents and the most recent settlement price is 250 cents. 25000(2. 51-2. 50)=250 ( if you closed the futuures contract immediately: cash 25000(2. 50-2. 40) =2500. A put option on corn futures has a strike price of 400 cents per bashel. It is exercised when the futures price is 380 cents and the most recent settlement is 379 cents. Short position in the futures, currently worth (5000)(3. 79-3. 80) =-. Futures options and futures trade on the same exchange. Call option on a spot price has payo max(st-k,0)