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Use your own word to explain the spot versus Futures prices.
a. what is Backwardation
b. What is Contango
c. What is Basis
Step by step
Solved in 2 steps
- If interest rate and stock price move in the same direction, then a futures price implied from spot-futures parity favorsDiscuss the factors giving rise to an inverted futures market for a storable versus a non-storable commodity. What are the implications for a hedger?Critically explain with examples the concept of futures and the differences between options and futures
- What are the assumptions that allow us to obtain the prices of futures and forward contracts in the same way? What happens if these assumptions are not satisfied?. Answer the following in a couple of sentences c) Compare and contrast forwards with futures. d) Compare and contrast options with futures.How do price limits work with futures? Do all futures contracts have limits?
- . Answer the following in a couple of sentences. d) Compare and contrast options with futures e) Compare swaps with forwardsDiscuss on the importance of margin requirement in futures market.a)define and explain convenience yield, and describe how it is incorporated into the futures pricing model. b)discuss the debate on whether risk premium should be included in the pricing of futures and forward contracts. c) define backwardation, normal backwardation, contango, and normal contango. d) discuss the relationship between the prices of puts, calls, and forward/futures contracts on the same underlying asset using the put-call-forward/futures parity. e) discuss the boundary conditions on the prices of American and European call option contracts on futures.
