How do we prove that the following relationship holds?;K2 - K1 > or = to C1-C2. (Hint: Show the payoffs for (K2-K1)e^-rt > or = to C1-C2 where r is the risk-free interest rate);Additional Requirements;Min Pages: 1;Level of Detail: Show all work;Other Requirements: 1. Suppose that you are given with the following information on a futures contract with a certain commodity of interest and 6 months to maturity, as the spot (cash) price, F = $89.1 as the current future price of the contract. Suppose the per annum risk-free rate is 3.2%, and assuming that there is no arbitrage opportunity in the futures market;a) What is the convenience yield for this contract provided that the current futures price is equal to the expected spot price? What does the convenience yield mean?;b) Assuming that the futures pricing model is to provide the expected spot price and if the futures price F = $104.8, are we having a contango or normal backwardation? Why? What is a contango or normal backwardation anyway?;c) Why the estimate for volatility (such as the standard deviation of spot price change or futures price change) does not enter the theoretical futures pricing model (except for volatility futures contract)?
Paper#21162 | Written in 18-Jul-2015Price : $17