wrongsaidfred
Member
Hi David,
I read two seperate GARP aims concenering Chapter 5 of Hull. One was to calculate forward price of an asset and the other was to calculate the futures price of a commodity. The book and your video both point out that if the value of the commodity is positively correlated with interest rates that the futures price should be higher than the forward price, and if there is a negative correlation that the futures price should be lower than the forward price.
That being said, the same cost of carry model seems to be used for calculating forward and futures prices. In Hull, he often says the forward price is X so this must be the futures price. I guess what I am really trying to ask is: with regard to the FRM exam, does the formula for the cost of carry give us the forward price (which must be adjusted up or down depending on the relationship between the asset and the risk free rate in order to find the futures price) or the actual futures price? Can we regard the price given by the cost of carry model to work both for futures prices and forward prices? I dont see any actual adjestment between the two, with the exception of Eurodollar futures.
Thanks,
Mike
I read two seperate GARP aims concenering Chapter 5 of Hull. One was to calculate forward price of an asset and the other was to calculate the futures price of a commodity. The book and your video both point out that if the value of the commodity is positively correlated with interest rates that the futures price should be higher than the forward price, and if there is a negative correlation that the futures price should be lower than the forward price.
That being said, the same cost of carry model seems to be used for calculating forward and futures prices. In Hull, he often says the forward price is X so this must be the futures price. I guess what I am really trying to ask is: with regard to the FRM exam, does the formula for the cost of carry give us the forward price (which must be adjusted up or down depending on the relationship between the asset and the risk free rate in order to find the futures price) or the actual futures price? Can we regard the price given by the cost of carry model to work both for futures prices and forward prices? I dont see any actual adjestment between the two, with the exception of Eurodollar futures.
Thanks,
Mike
