ForwardSpot Relationship前锋的位置的关系.pptVIP

Forward-Spot Relationship Basic Case Widgets may be stored for free, generate no income, and do not spoil. Spot price of widgets = $10 Interest rate R = .05 One year forward price = 10(1.05) = 10.50 Arbitrage: Forward price too high What if forward price of widgets is $10.75? Borrow $10 Pay back $10.50 Buy widgets @ 10.00 Short Forward @ 10.75 Sell widgets @ 10.75 No cash flow today Arbitrage profit = .25 Arbitrage: Forward price too low What if forward price of widgets is $10.30? Short widgets @ 10.00 Lend proceeds $10 Get back $10.50 Long Forward @ 10.30 Buy widgets @ 10.30 No cash flow today Arbitrage profit = .20 Spoilage Chem X dissipates at the rate of 20% per year. Spot price = $1000 Interest rate R = .05 F [$1000/(1-.2)](1.05) = $1312.50 F $1000(1.05) = 1050 Arbitrage: Forward price too high What if forward price of Chem X is $1320? Borrow (1000/.8) = $1250 Pay back $1312.50 Buy 1.25 Chem X @ $1000 (Some spoils) Short Forward @ 1320 Sell 1 Chem X @ 1320 No cash flow today Arbitrage profit = 7.50 Arbitrage: Forward price too low What if forward price of Chem X is $1020? Short 1 Chem X @ 1000 Lend $1000 Get back $1050 Long Forward @ 1020 Buy 1 Chem X @ 1020 (Cover Short) No cash flow today Arbitrage profit = $30 [Only works if CHEM X is available to short] Dividends or Coupon Payments Default-free note pays $1,000 in six months Spot price of note = $10,000 Six-month discount factor = .97 One-year discount factor = .95 F = (10,000-.97*1,000)/.95 = $9505.26 Example Party A enters long side, Party B enters the short side of a forward contract on 1,000 shares of Hewlitt Packard stock, to be delivered on December 1, 1998. Hewlitt Packard pays a dividend of .16 on October 14. The current price is $52/share. The discount factor for Oct. 14 is .993 The discount factor for December 1 is .985 Example, continued The present value of the dividend p