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Unformatted text preview: the futures and always be making money. F- S + 2 e T > . case 2: F < F * Cashow ( t = 0) Cashow ( t = T ) Buy Futures Contract f S T-F Lend spot at lending rate-F e- T F Sell underlying asset at spot S- 2 f S T Net Cash Flow S- 2 -F e- T Arbitrage exists when F < S- 2 e T . The net cash ow is always positive. S- 2 e T-F > 0, so shorting the asset and long position the futures....
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- Spring '10