Ch05HullFundamentals5thEd

Ch05HullFundamentals5thEd - Determination of Forward and...

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Fundamentals of Futures and Options Markets , 5 th Edition, Copyright © John C. Hull 2004 5.1 Determination of Forward and Futures Prices Chapter 5
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Fundamentals of Futures and Options Markets, 5th Edition, 5.2 Consumption vs Investment Assets Investment assets are assets held by significant numbers of people purely for investment purposes (Examples: gold, silver) Consumption assets are assets held primarily for consumption (Examples: copper, oil)
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Fundamentals of Futures and Options Markets, 5th Edition, 5.3 Short Selling (Page 97-99) Short selling involves selling securities you do not own Your broker borrows the securities from another client and sells them in the market in the usual way
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Fundamentals of Futures and Options Markets, 5th Edition, 5.4 Short Selling (continued) At some stage you must buy the securities back so they can be replaced in the account of the client You must pay dividends and other benefits the owner of the securities receives
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Fundamentals of Futures and Options Markets, 5th Edition, 5.5 Notation S 0 : Spot price today F 0 : Futures or forward price today T : Time until delivery date r : Risk-free interest rate for maturity T
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Fundamentals of Futures and Options Markets, 5th Edition, 5.6 1. Gold: An Arbitrage Opportunity? Suppose that: The spot price of gold is US$390 The quoted 1-year forward price of gold is US$425 The 1-year US$ interest rate is 5% per annum No income or storage costs for gold Is there an arbitrage opportunity?
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Fundamentals of Futures and Options Markets, 5th Edition, 5.7 2. Gold: Another Arbitrage Opportunity?
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Ch05HullFundamentals5thEd - Determination of Forward and...

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