Question: Question 2 As a junior analyst, you have been tasked by your line manager to prepare supporting calculations in your report for a presentation to

Question 2

As a junior analyst, you have been tasked by your line manager to prepare supporting calculations in your report for a presentation to be made before Teachers Pension Funds management. These calculations should essentially demonstrate derivative pricing using the No Arbitrage Principle. To do so, you choose to demonstrate the pricing of futures and options contract on BT Group listed on Eurex Exchange. The line manager also wants to understand more about risk neutral pricing and expects you to provide some explanation of the underlying concepts.

Required:

Estimate the fair price of any BT Group futures contract on Eurex using the cost of carry model. You are required to cover the following too:
1. provide (select and make assumptions) any missing inputs.
2. explain all the inputs in your pricing model and justify each.

compare the price from your cost of carry model against the actual price at the day close and

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