1. (10 points) Consider a forward contract on an asset paying no income with price (S;)120...
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1. (10 points) Consider a forward contract on an asset paying no income with price (S;)120 (e.g., stock without dividends) with maturity T. Let Z(t, T) be the value at time t of a ZCB maturing at time T. Let F(t, T) denote the forward price. It holds that F(t, T) = S,Z(t, T)-1. (1) (1) Show (1) using replication argument. (ii) Show (1) using no-arbitrage argument. 1. (10 points) Consider a forward contract on an asset paying no income with price (S;)120 (e.g., stock without dividends) with maturity T. Let Z(t, T) be the value at time t of a ZCB maturing at time T. Let F(t, T) denote the forward price. It holds that F(t, T) = S,Z(t, T)-1. (1) (1) Show (1) using replication argument. (ii) Show (1) using no-arbitrage argument.
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Given that Answer F47 2 11 No arbitrage argument Exchange rate ... View the full answer
Related Book For
An Introduction to Derivative Securities Financial Markets and Risk Management
ISBN: 978-0393913071
1st edition
Authors: Robert A. Jarrow, Arkadev Chatterjee
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