Trinity Financials Trinity Financials is a mid-size rm that specialises in investment management services to institutional investors in the pension fund industry. You have been recently recruited as a Junior Analyst on the derivatives trading desk and have been assigned to look after Midland Pensions. one of Trinity's prime clients. Midland's portfolio consists of investments in UK equities as well as US equities. Historically, Midland has mandated Trinity to rely on portfolio diversification to manage the risk of its equity investments. However. recently it has realised that both the UK and US equity markets are highly co-integrated and increasingly move in tandem leaving its portfolio investments at higher risk. Midland is now considering the use of derivatives contracts to manage the risk of portfolio investments. As a starting point, it has requested your line manager at Trinity to make a presentation before the investment committee of Midland Pensions. To help prepare for this presentation. your line manager has tasked you to write a report. Question 2 Your line manager wants to demonstrate the pricing of futures and options to the investment committee at Midland Pensions and requires you to prepare supporting calculations in your report for his presentation. 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 BP listed on Eurex Exchange. Required: A. Estimate the fair price of any BP futures contract on Eurex using the cost of carry model. You are required to cover the following too: provide (select and make assumptions) any missing inputs. . 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 explain any underlying reasons for the under-pricing or over-pricing