DETERMINATION OF FORWARD AND FUTURES PRICES

Determination of Forward and Futures Prices | Download

Chapter 1 Forward And Futures Markets Faculty - The Forward/Futures Price l If the spot price of an investment asset is S 0 and the futures price for a contract deliverable in T years is F 0, then: F 0 = S 0(1+r)T where r is the T-year risk-free rate of interest. l In our examples, S 0 =40, T=0.25, and r=0.05 so that the no-arbitrage forward/futures price should be: F 0 = 40(1.05)0.25 =40.5 13 by

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