Exam 9: Principles of Pricing Forwards, Futures and Options on Futures

The additional return earned by holding a commodity that is in short supply or a nonpecuniary gain from an asset is referred to as

The price of a futures contract that expires immediately is the spot price.

Normal backwardation and contango are mutually exclusive conditions for a market.

If one buys an asset, sells a futures, and holds the position until expiration, it is equivalent to selling the asset at the original futures price.

Under uncertainty and risk neutrality, today's spot price equals the expected future spot price minus the cost of storage and interest forgone.

Interest rate parity is essentially the same as

What is the lower bound of a European call option on a futures contract where f₀ is the futures price and X is the exercise price? Assume f₀ is greater than X.

A futures contract can have negative value.

Which of the following best describes normal contango?

American foreign currency calls will never be exercised early.

Forward and futures prices will be equal prior to expiration if interest rates are certain or if futures prices and interest rates are correlated.

A synthetic put option on futures could be constructed by buying a call option on futures and selling the futures.

Suppose you buy a futures contract at $150. If the futures price changes to $147, what is its value an instant before it is marked-to-market?

A deep in-the-money call option on futures is exercised early because

Under uncertainty and risk aversion, today's spot price equals

A stock index futures price is the stock price compounded to expiration at the risk-free rate plus the future value of the dividends.

What would be the spot price if a stock index futures price were $75, the risk-free rate were 10 percent, the continuously compounded dividend yield is 3 percent, and the futures contract expires in three months?

Why is the initial value of a futures contract zero?

The price of a futures spread reflects the cost of carry until the time the spread is closed.

Futures prices differ from spot prices by which one of the following factors?