homework3 - 5.3. The forward price is 30 5.4. The futures...

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5.3. The forward price is 30 e 0 : 12 6 12 = 31 : 86 : 5.4. The futures price is 350 e (0 : 08 ± 0 : 04) 4 12 = 354 : 70 : 5.9. (a) The forward price is 40 e 0 : 1 1 = 44 : 21 : The initial value of the contract is zero. (b) The forward price is 45 e 0 : 1 6 12 = 47 : 31 : The value of the long position is (47 : 31 ± 44 : 21) e ± 0 : 1 6 12 = 2 : 95 : 5.12. The fair price is 400 e (0 : 1 ± 0 : 04) 4 12 = 408 : 08 ; which is greater than $405. Therefore we can do the following: t T long e 0 : 04 4 12 units of futures 0 e 0 : 04 4 12 ( S ( T ) ± 405) short 1 index 400 ± S ( T ) e 0 : 04 4 12 invest the proceeds ± 400 400 e 0 : 1 4 12 Total 0 400 e 0 : 1 4 12 ± 405 e 0 : 04 4 12 = 3 : 12 5.14. The fair price is 0 : 65 e (0 : 08 ± 0 : 03) 2 12 = 0 : 6554 ; which is less than 0.6600. Therefore we can do the following: t T short e 0 : 03 2 12 units of SFr futures 0 e 0 : 03 2 12 (0 : 6600 ± S ( T )) borrow $0.65 0 : 65 ± 0 : 65 e 0 : 08 2 12 buy 1 SFr and invest ± 0 : 65
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This note was uploaded on 03/19/2008 for the course FI 478 taught by Professor Yu during the Spring '08 term at Michigan State University.

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homework3 - 5.3. The forward price is 30 5.4. The futures...

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