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Table 12.1: Cash Flows to a Cash and Carry Trading StrategyPowerPoint Presentation

Table 12.1: Cash Flows to a Cash and Carry Trading Strategy

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1

1

1.037958

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.967826

1.016031

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1.054597

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P(0,4)

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1/2

.977778

P(0,3)

1

.942322

1

=

r(0) = 1.02

P(0,2)

.961169

P(0,1)

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1.062869

P(0,0)

1

.983134

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1/2

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time 0 1 2 3 4

Figure 12.1: An Example of a One-Factor Bond Price Curve Evolution. The Money Market Account Values and Spot Rates are Included on the Tree. Pseudo-Probabilities Are Along Each Branch of the Tree.

Figure 12.2: An Example of a Forward Contract Initiated at Time 0 on a 3-Period Zero-Coupon Bond. The forward contract expires at time 2, with value (v(t;st)) and forward price (F(t,2:3;st)).

time 0 1 2

Figure 12.3: An Example of a Forward Contract Initiated Time 0 on a Four-Period Zero-Coupon Bond. The forward contract expires at time 3, with value (v(t;st)) and forward price (F(t,3:4;st)).

1.054597 Time 0 on a Four-Period Zero-Coupon Bond. The forward contract expires at time 3, with value (v(t;s

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1.016031

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1.054597

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1

1/2

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1

1.020393

B(0)

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1.059125

1

P(0,4)

.923845

1/2

.977778

P(0,3)

1

.942322

1

=

r(0) = 1.02

P(0,2)

.961169

P(0,1)

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1.062869

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1

.983134

1.042854

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1.022406

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1.068337

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1.024436

1

1/2

1.068337

.974502

1

1

time 0 1 2 3 4

Figure 12.1: An Example of a One-Factor Bond Price Curve Evolution. The Money Market Account Values and Spot Rates are Included on the Tree. Pseudo-Probabilities Are Along Each Branch of the Tree.

time 0 1 2 Time 0 on a Four-Period Zero-Coupon Bond. The forward contract expires at time 3, with value (v(t;s

Figure 12.4: An Example of a Futures Contract with Expiration Date 2 on the 3-Period Zero-Coupon Bond. Futures prices (F(t,2:3)) are given at each node. Pseudo-probabilities are on each branch of the tree. The synthetic futures contract (n0(t;st), n3(t;st)) in the money market account and the 3-period bond are also provided.

time 0 1 2 3 Time 0 on a Four-Period Zero-Coupon Bond. The forward contract expires at time 3, with value (v(t;s

Figure 12.5: An Example of a Futures Contract with Expiration Date 3 on a 4-Period Zero-Coupon Bond. Futures prices (F(t,3:4)) are given at each node. Pseudo-probabilities are along the branches of the tree. The synthetic futures contract (n0(t;st), n4(t;st)) in the money market account and 4-period bond is also provided.

Table 12.2: A Comparison of Forward and Futures Prices for a Two-Period Contract on the Three-Period Zero-Coupon Bond. Spot Prices are also Included.

Table 12.3: A Comparison of Forward and Futures Prices for a Three-Period Contract on the Four-Period Zero-Coupon Bond. Spot Prices are also Included.

1.054597 a Three-Period Contract on the Four-Period Zero-Coupon Bond. Spot Prices are also Included.

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=

r(0) = 1.02

P(0,2)

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P(0,1)

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P(0,0)

1

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1

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1

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1.024436

1

1/2

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1

1

time 0 1 2 3 4

Figure 12.1: An Example of a One-Factor Bond Price Curve Evolution. The Money Market Account Values and Spot Rates are Included on the Tree. Pseudo-Probabilities Are Along Each Branch of theTree.

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