Futures and spot relationship to find arbitrage opportunity

Reference no: EM131010138

Arbitrage Using Futures

Use futures and spot relationship to find an arbitrage opportunity.

F = S erT

We learned in the class that when future price is deviated from the price determined from the above formula, an arbitrage opportunity will arise. You will use this case to illustrate if you can find an arbitrage opportunity in a real world.

You may define the parameters on your own or use the following assumption for the parameters:

Interest rate is 5%

Transaction costs for a trade on futures (selling or buying) is $25 per contract 365 days a year

To find spot gold price, you may google "spot gold price" or use the most nearby month futures price as spot price.

Your case report should include the following format: Introduction of the case study, explanation of any related theory, the data sources, analytical results, and conclusion. Assume you have $100,000 to conduct the arbitrage.

Reference no: EM131010138

Questions Cloud

Why you believe the campaign was successful : "Historians and archaeologists will one day discover that the ads of our time are the richest and most faithful daily reflections any society ever made of its whole range of activities."

Considering investing in mutually exclusive projects : Country Wallpapers is considering investing in one of three mutually exclusive projects, E, F and G. The firm's cost of capital, r, is 15%, and the risk free rate (Rf) is 10%. The firm has gathered the following basic cash flow and risk index data fo..

Present value of investment under period of rising inflation : You are interested in an investment project that costs $10,500 initially. The investment has a 5- year horizon and promises future end-of-year cash inflows of $5,000, $4,000, $2,500, $3,500 and $2,000 respectively. Your current cost of capital is 8% ..

Description of a real world business activity : The purpose of the practitioner interview is twofold: (1) to determine whether the 5-fold definition of "practice" is, or can be, a fair description of a real world business activity

Futures and spot relationship to find arbitrage opportunity : We learned in the class that when future price is deviated from the price determined from the above formula, an arbitrage opportunity will arise. You will use this case to illustrate if you can find an arbitrage opportunity in a real world.

Find the x-value of the relative maxima and relative minima : Find the x-value(s) of the relative maxima and relative minima, if any, of the function. (If an answer does not exist, enter DNE.) 3x5 - 80x3 + 12.

Considering the purchase of truck : Your firm’s discount rate is 8 percent. You are considering the purchase of Truck A or Truck B. Truck A costs $120, has a useful life of 3 years, no salvage value and maintenance costs of $10 per year. Truck B costs $80, has a useful life of 2 years,..

What would the net present value be at discount rate : You are pondering starting a company that specializes in high-end bicycles. Your initial investment would be $500,000 for depreciable equipment, which should last 5 years, and your tax rate would be 40%. If you could sell 60 bikes in the first year, ..

Preferred equity redeemable for common stock : In addition to companies offering convertible bonds, they also offer other bonds linked to options or equity-linked notes. Assume you are a portfolio/risk manager and your company just issued one such instrument bond linked to options from the list b..

User Account

All Pages