Lecture 3.pdf - Lecture 3 More on the Cost-of-Carry Hedging...

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1 FNCE 90011, Semester 2 2017 Thijs van der Heijden Lecture 3: More on the Cost-of-Carry; Hedging
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2 FNCE 90011, Semester 2 2017 Thijs van der Heijden Last week Use arbitrage to work out relation between spot and forward price: invest in spot market using borrowing/lending as financing, and take opposite position in derivative contract (Reverse) cash-and-carry Accounting for differential borrowing/lending rates Transaction costs Futures markets: Standardization facilitates anonymous trading Clearinghouse guarantees performance of contracts Buyer to every seller, seller to every buyer Margin account Mark-to-market
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