Consider two different forward contracts on the same consumption asset. There are no storage costs. Today it is t = 0. One contract has maturity date T and the other has maturity date T_2 where T_2 > T_1. The risk free rate is r. Show that no arbritrage implies that:F_2 <= F_1(1 + r)^(T_2 - T_1)
Consider two different forward contracts on the same consumption asset. There are no storage costs. Today it is t = 0. One contract has maturity date T and the other has maturity date T_2 where T_2 > T_1. The risk free rate is r. Show that no arbritrage implies that:F_2 <= F_1(1 + r)^(T_2 - T_1)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Consider two different forward contracts on the same consumption asset. There are no storage costs. Today it is t = 0. One contract has maturity date T and the other has maturity date T_2 where T_2 > T_1. The risk free rate is r. Show that no arbritrage implies that:F_2 <= F_1(1 + r)^(T_2 - T_1)
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