EC3070 FINANCIAL DERIVATIVESMARKING TO MARKETImagine a futures contract that has been written at timet= 0, which obligesa party to supply an asset or a commodity at timeτfor a settlement priceofFτ|0. This party, which takes the short position, might currently own theasset or they might be in the process of producing a commodity to bring tomarket at a future date. Then, their purpose in holding the contract would beto guarantee a price for their product. Alternatively, the contract holder mightbe a speculator with no essential interest in the underlying asset.In any case, the contract holder will be required to deposit with the bro-kers a sum of money described as the margin, which will be calculated at apercentage of the current spot priceS0of the asset. At the end of each day oftrading on the futures exchange, the margin will be adjusted to reﬂect the gainsor losses of the contract holder. Should the cumulated losses reduce the margin
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