When treating futures using the cost of carry model, where does inflation risk be considered? Provide analysis.
When treating futures using the cost of carry model, where does inflation risk be considered? Provide analysis.
Homework Answers
Many factors affect futures prices, such as interest rates, storage costs and dividend income.
The futures price of non-dividend and non-storable assets is a function of the risk-free interest rate, the spot price and the expiry time.
Assets expected to pay income will lower futures prices.
Since the seller of the futures incorporates the cost into the contract, storage costs will always increase the futures price.
The convenience rate of return (indicating the gains of owning another asset rather than owning futures) lowers the price of futures.
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When treating futures using the cost of carry model, where does inflation risk be considered? Provide analysis.
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6.
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6.
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