Derivatives E2

1、Cost of Carry Model copyright THC 2003. All rights reserved by Thomas Ho Company, New York, NY. USA www. reference numberclassification#30601InstructionsVersion1.0levelbasicpublication date7-03authorHanyang Financial Engineering Lab.affiliationHanyang Universityinputemail addressleesbhanyang.ac.krla

2、st revised date5-04outputreferencesCox, J. C., J. E. Ingersoll, and S. A. Ross, 1981, The Relation between Forward Prices and Futures Prices, Journal of Financial Economics, Vol.9, 321-346.Ch. 3 of The Oxford Guide to Financial Modeling by Thomas S.Y. Ho and Sang Bin Lee, 2004, Oxford University Pre

3、ssDescriptionsfinancial model classbond markets: the bond modelissuer/modelerpractionermodel typeForward Prices and Forward Ratesrisk sourcesN/Arisk distributionN/Aeconomic assumptionsperfect capital markettechnical assumptionssimple compoundingkey wordscost of carryLinksdataN/Afinancial modelsbond

4、modelInputsforward contract expiration (month)3spot price (S)260risk free rate0.05dividend per share0ex-dividend date (month)0There is no carry return for commodities.Outputstheoretical forward price (F)263.25F = S + CC - CRmarket observed forward price (F0)270Cash-and-carry arbitragetodaycash flowS

5、ell forward contract at F00Borrow S260Buy S-260Sum0delivery datecash flowMake delivery270Pay back loan principal and interest-263.25Receive carry return0Sum6.75Arbitrage trade does not need any information on the spot price on the delivery date, ST.forward contract expiration, spot price, risk free

6、ratedividend per share, ex-dividend datetheoretical forward price copyright THC 2003. All rights reserved by Thomas Ho Company, New York, NY. USA www. Cox, J. C., J. E. Ingersoll, and S. A. Ross, 1981, The Relation between Forward Prices and Futures Prices, Journal of Financial Economics, Vol.9, 321

7、-346.Ch. 3 of The Oxford Guide to Financial Modeling by Thomas S.Y. Ho and Sang Bin Lee, 2004, Oxford University PressCost of Carry Model copyright THC 2003. All rights reserved by Thomas Ho Company, New York, NY. USA www. reference numberclassification#30601InstructionsVersion1.0levelbasicpublicati

8、on date7-03authorHanyang Financial Engineering Lab.affiliationHanyang Universityinputemail addressleesbhanyang.ac.krlast revised date5-04outputreferencesCox, J. C., J. E. Ingersoll, and S. A. Ross, 1981, The Relation between Forward Prices and Futures Prices, Journal of Financial Economics, Vol.9, 3

9、21-346.Ch. 3 of The Oxford Guide to Financial Modeling by Thomas S.Y. Ho and Sang Bin Lee, 2004, Oxford University PressDescriptionsfinancial model classbond markets: the bond modelissuer/modelerpractionermodel typeForward Prices and Forward Ratesrisk sourcesN/Arisk distributionN/Aeconomic assumptio

10、nsperfect capital markettechnical assumptionssimple compoundingkey wordscost of carryLinksdataN/Afinancial modelsbond modelInputsforward contract expiration (month)5stock price (S)120dividend per share10ex-dividend date (month)2risk free rate0.06Outputstheoretical forward price (F)112.85F = S + CC -

11、 CRforward contract expiration, spot price, risk free ratedividend per share, ex-dividend datetheoretical forward price copyright THC 2003. All rights reserved by Thomas Ho Company, New York, NY. USA www. Cox, J. C., J. E. Ingersoll, and S. A. Ross, 1981, The Relation between Forward Prices and Futu

12、res Prices, Journal of Financial Economics, Vol.9, 321-346.Ch. 3 of The Oxford Guide to Financial Modeling by Thomas S.Y. Ho and Sang Bin Lee, 2004, Oxford University PressCost of Carry Model copyright THC 2003. All rights reserved by Thomas Ho Company, New York, NY. USA www. reference numberclassif

13、ication#30601InstructionsVersion1.0levelbasicpublication date7-03authorHanyang Financial Engineering Lab.affiliationHanyang Universityinputemail addressleesbhanyang.ac.krlast revised date5-04outputreferencesCox, J. C., J. E. Ingersoll, and S. A. Ross, 1981, The Relation between Forward Prices and Fu

14、tures Prices, Journal of Financial Economics, Vol.9, 321-346.Ch. 3 of The Oxford Guide to Financial Modeling by Thomas S.Y. Ho and Sang Bin Lee, 2004, Oxford University PressDescriptionsfinancial model classbond markets: the bond modelissuer/modelerpractionermodel typeForward Prices and Forward Rate

15、srisk sourcesN/Arisk distributionN/Aeconomic assumptionsperfect capital markettechnical assumptionssimple compoundingkey wordscost of carryLinksdataN/Afinancial modelsbond modelInputsforward contract expiration (month)6spot price (S)280risk free rate0.1transaction cost1dividend per share0ex-dividend

16、 date (month)0There is no carry return for commodities.Outputstheoretical forward price (F)293 F 295S+CC-CR-T F S+CC-CR+Tforward contract expiration, spot price, risk free ratedividend per share, ex-dividend datetheoretical forward price copyright THC 2003. All rights reserved by Thomas Ho Company,

17、New York, NY. USA www. Cox, J. C., J. E. Ingersoll, and S. A. Ross, 1981, The Relation between Forward Prices and Futures Prices, Journal of Financial Economics, Vol.9, 321-346.Ch. 3 of The Oxford Guide to Financial Modeling by Thomas S.Y. Ho and Sang Bin Lee, 2004, Oxford University PressCost of Ca

18、rry Model copyright THC 2003. All rights reserved by Thomas Ho Company, New York, NY. USA www. reference numberclassification#30601InstructionsVersion1.0levelbasicpublication date7-03authorHanyang Financial Engineering Lab.affiliationHanyang Universityinputemail addressleesbhanyang.ac.krlast revised

19、 date5-04outputreferencesCox, J. C., J. E. Ingersoll, and S. A. Ross, 1981, The Relation between Forward Prices and Futures Prices, Journal of Financial Economics, Vol.9, 321-346.Ch. 3 of The Oxford Guide to Financial Modeling by Thomas S.Y. Ho and Sang Bin Lee, 2004, Oxford University PressDescript

20、ionsfinancial model classbond markets: the bond modelissuer/modelerpractionermodel typeForward Prices and Forward Ratesrisk sourcesN/Arisk distributionN/Aeconomic assumptionsperfect capital markettechnical assumptionssimple compoundingkey wordscost of carryLinksdataN/Afinancial modelsbond modelInput

21、sforward contract expiration (month)6spot price (S)60borrowing rate0.03lending rate0.025transaction cost0dividend per share0ex-dividend date (month)0There is no carry return for commodities.Outputstheoretical forward price (F)60.7500 F 60.9000S+CC1-CR-T1 F S+CC2-CR+T260.750market observed forward pr

22、ice (F0)61.0000synthetic lending rate0.0333=(F0/S-1)*(12/T)(=implied repo rate)Cash-and-carry arbitragetodaycash flowSell forward contract at F00.00Borrow S60.00Buy S-60.00Sum0.00delivery datecash flowMake delivery61.00Pay back loan principal and interest(60.90)Receive carry return0.00Sum0.10Arbitra

23、ge trade does not need any information on the spot price on the delivery date, ST.forward contract expiration, spot price, risk free ratedividend per share, ex-dividend datetheoretical forward price copyright THC 2003. All rights reserved by Thomas Ho Company, New York, NY. USA www. Cox, J. C., J. E

24、. Ingersoll, and S. A. Ross, 1981, The Relation between Forward Prices and Futures Prices, Journal of Financial Economics, Vol.9, 321-346.Ch. 3 of The Oxford Guide to Financial Modeling by Thomas S.Y. Ho and Sang Bin Lee, 2004, Oxford University PressCost of Carry Model copyright THC 2003. All right

25、s reserved by Thomas Ho Company, New York, NY. USA www. reference numberclassification#30601InstructionsVersion1.0levelbasicpublication date7-03authorHanyang Financial Engineering Lab.affiliationHanyang Universityinputemail addressleesbhanyang.ac.krlast revised date5-04outputreferencesCox, J. C., J.

26、 E. Ingersoll, and S. A. Ross, 1981, The Relation between Forward Prices and Futures Prices, Journal of Financial Economics, Vol.9, 321-346.Ch. 3 of The Oxford Guide to Financial Modeling by Thomas S.Y. Ho and Sang Bin Lee, 2004, Oxford University PressDescriptionsfinancial model classbond markets:

27、the bond modelissuer/modelerpractionermodel typeForward Prices and Forward Ratesrisk sourcesN/Arisk distributionN/Aeconomic assumptionsperfect capital markettechnical assumptionssimple compoundingkey wordscost of carryLinksdataN/Afinancial modelsbond modelInputsforward contract expiration (month)3sp

28、ot price (S)64borrowing rate0.07lending rate0.055transaction cost0dividend per share0ex-dividend date (month)0There is no carry return for commodities.Outputstheoretical forward price (F)64.8800 F 65.1200S+CC1-CR-T1 F S+CC2-CR+T2market observed forward price (F0)65synthetic lending rate0.0625=(F0/S-

29、1)*(12/T)(=implied repo rate)Cash-and-carry arbitragetodaycash flowBuy forward contract at F00.00Lend S-64.00Sell S short64.00Sum0.00delivery datecash flowTake delivery-65.00Receive loan principal and interest64.88Pay carry return0.00Sum-0.12Arbitrage trade does not need any information on the spot

30、price on the delivery date, ST.forward contract expiration, spot price, risk free ratedividend per share, ex-dividend datetheoretical forward price copyright THC 2003. All rights reserved by Thomas Ho Company, New York, NY. USA www. Cox, J. C., J. E. Ingersoll, and S. A. Ross, 1981, The Relation bet

31、ween Forward Prices and Futures Prices, Journal of Financial Economics, Vol.9, 321-346.Ch. 3 of The Oxford Guide to Financial Modeling by Thomas S.Y. Ho and Sang Bin Lee, 2004, Oxford University PressCost of Carry Model copyright THC 2003. All rights reserved by Thomas Ho Company, New York, NY. USA

32、www. reference numberclassification#30601InstructionsVersion1.0levelbasicpublication date7-03authorHanyang Financial Engineering Lab.affiliationHanyang Universityinputemail addressleesbhanyang.ac.krlast revised date5-04outputreferencesCox, J. C., J. E. Ingersoll, and S. A. Ross, 1981, The Relation between Forward Prices and Futures Prices, Journal of Financial Economics, Vol.9, 321-346.Ch. 3 of The Oxford Guide to Financial Modeling by Thom