Find upper and lower bounds for the forward price

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Forwards in presence of bid-offer spreads Let St be the current price of a stock that pays no dividends.

(a) Let rBID be the interest rate at which one can invest/lend money, and rOFF be the interest rate at which one can borrow money, rBID ≤ rOFF. Both rates are continuously compounded. Using arbitrage arguments, find upper and lower bounds for the forward price of the stock for a forward contract with maturity T >t.

(b) How does your answer change if the stock itself has bid price St,BID and offer price St,OFF?

Reference no: EM131243497

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