YouTube P1.T3. Financial Markets & Products Robert McDonald, Derivatives Markets

[tushijima]

I saw the youtube video, read through the study note, and watched the lecture on this chapter and still do not understand where does "buying commodity" and "short commodity" come from (I don't think that that was not explained)

 

[tushijima]

Why $9.9?? Can you show me the calculation?

 

[David Harper CFA FRM]

Hi @tushijima Please see McDonald's Table 5.6 & 5.7 below. The $9.90 in my example is given by S(0)*exp(-δ*T) = $10.00*exp(-1.0%*1.0) = $9.90 where 1.0% is the lease rate, which itself is given by δ = α - g = 6.0% discount rate - 5.0% expected growth rate. Here is the XLS: https://www.dropbox.com/s/l0l2vnbaq6mijp5/082719-carry-arb.xlsx. Thanks!

cc @Nicole Seaman this refers to an older YouTube video (2010) that is not among our recent playlists, it is located at

... so i wasn't able to move this thread