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ADMS 4503 (13)


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York University
Administrative Studies
ADMS 4503
Nabil Tahani

LECTURE 2. From our point of view: prices of future and forward constracts are the same. Reasons / Assumptions being: - Interest rates are constant / deterministic However, in reality, interest rates fluctuate and this affects the future and forward contract prices Two types of commodities: - Investment commodity : gold - Consumption commodity: oil – the consumption feature that forces us to not make an arbitrage profit ( convenience yield) Exchanges: - CME is an umbrella to agriculture, currencies, oil, gold etc. - One Chicago is the only futures exchange that trades futures on stock What can be delivered: - Commodity - Prices Subject to standard grade ( #1 at premium – better quality, #2 at par- standard quality, #3 at discount – lower quality) - Again, prices will be adjusted as per specified maturity, coupons.etc. ( in terms of financial assets) Where it can be delivered: - Specified place - When one location is specified, there is no price adjustment. However, price is adjusted when there are alternatives Important specification: - Contract size - Price quotes: limit in the number of contracts bought at a given time. Daily price movement limits etc. Eg. 105- 18 or 105’18 means $105 + 18/32 Margins: Example: - Two long futures of 100 oz - 𝐹0= k = $400/ oz - 𝑖𝑛𝑖𝑡𝑖𝑎𝑙 𝑚𝑎𝑟𝑔𝑖𝑛
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