This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: Every optimized portfolio has the SAME sharp ratio! i.e. same slope. ___________________________________________________________________________ ___________ Forward contract: agree at now but no cash settlement. Fix a price. The forward price F. Obligation to deliver and sell. Obligation to buy too. Borrow money to buy actual commodity at the same time enter a future contract to sell in future. Risk free profit. F=e^(r+s)t s=storage cost. (see spot price too low relative to forward price) Vice versa: Short spot and buy future. S(0) Spot P put C call X exercise price F forward price T time R return Put call parity: +: 1 Stock, 1 put-: 1 Call-: 1 Stock 1 put +: 1 Call F=S e^(rf)(T-t) Or rf+s if there’s storage cost. So-C+P=X/e^rT If X is the smaller one, then short. Vice versa....
View Full Document
This note was uploaded on 10/20/2011 for the course ECON 196 taught by Professor Darity,w during the Spring '08 term at Duke.
- Spring '08