Question: iv . Consider a forward contract on gold. Suppose that there is fixed storage cost of $c per ounce, paid at the end period and
iv Consider a forward contract on gold. Suppose that there is fixed storage cost of $c per ounce, paid at the end period and c is the same for any time period less than one year. Let St be the spot price of one ounce of gold at time t and r be the continuously compounded riskfree rate of interest which is assumed to be constant. Derive the price at time t of a forward contract written one ounce of gold at the start of the start of the year, with maturity T year T
Step by Step Solution
There are 3 Steps involved in it
1 Expert Approved Answer
Step: 1 Unlock
Question Has Been Solved by an Expert!
Get step-by-step solutions from verified subject matter experts
Step: 2 Unlock
Step: 3 Unlock
