FIN 303 Study Guide - Final Guide: Norwegian Krone, Risk-Free Interest Rate, Chicago Board Options Exchange
10 May 2017
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Buyer desk eller: > 95% of the time, buyer receives st - f from seller. Two parties never meet, trade is facilitated by an exchange. Very standardized contracts, can pretty much close out whenever. Buyer gets ft ft-1 from seller each period. Total cumulative payoff still = st - f (if position is kept open) Both parties need to agree to close out. Buyer gets st - f from the seller at t. Derivative (proof) of spot futures parity cost of contracts: to avoid arbitrage, f = s (1 + r)^t. S + [f /(1 + r)^t] = 0. Interest rate parity: t = number of days until position matures, e = currency exchange rate on direct basis (home/foreign, f = futures price (home future, this pricing relationship is due to a no arbitrage condition. Ptq: q: let t = 365 days (1 year) | e = /(cid:1011). (cid:1010)(cid:1008)(cid:1008) kro(cid:374)e , f = /7. 7935 krone, rate us 5%, rate.
