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Unformatted text preview: then the spot-futures parity relationship becomes: F. = 5 (1 + r f-dY Index Arbitrage Exploiting m~5f(1 C i~ between underlying stocks and the fit es in contract ~ Futures price is too high: Short the futures and buy the underlying stocks. ,.. Futures price is too low: Long the futures and short sell the underlying stocks. Difficult to do in practice > Transactions costsaceoftentoo~. }o Trades cannot be done S;M tJ ft:a.f.l orly. :,. Can be approximated through program trading. 100...
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- Fall '10