A particular forward contract costs nothing to enter into at time t and obliges the holder to
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A particular forward contract costs nothing to enter into at time t and obliges the holder to buy the asset for an amount F at expiry T. The asset pays a dividend DS at time td, where 0 ≤ D ≤ 1 and t ≤ td ≤ T. Use an arbitrage argument to find the forward price F(t).
Consider the point of view of the writer of the contract when the dividend is reinvested immediately in the asset.
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At time t the writer of the contract will receive F t and will be obliged to pu...View the full answer
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