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# Table 12.1: Cash Flows to a Cash and Carry Trading Strategy - PowerPoint PPT Presentation

Table 12.1: Cash Flows to a Cash and Carry Trading Strategy. 1.054597. .985301. 1. 1. 1.037958. 1/2. .967826. 1.016031. .984222. 1.054597. 1. 1/2. 1/2. .981381. 1.02. 1. 1. .947497. .965127. 1.059125. 1.017606. .982699. 1. .982456. 1. 1.037958. 1. 1/2. 1/2. 1/2.

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.985301

1

1

1.037958

1/2

.967826

1.016031

.984222

1.054597

1

1/2

1/2

.981381

1.02

1

1

.947497

.965127

1.059125

1.017606

.982699

1

.982456

1

1.037958

1

1/2

1/2

1/2

.960529

1

1.020393

B(0)

.980015

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)

.980392

1.062869

P(0,0)

1

.983134

1.042854

1/2

1

1

.962414

1/2

1.019193

.981169

1.02

1/2

1.062869

1

1/2

.937148

.978637

1

.957211

1

1.022406

.978085

1

1.068337

.979870

1.042854

1

1/2

1/2

1

.953877

.976147

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.

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

.985301

1

1

1.037958

1/2

.967826

1.016031

.984222

1.054597

1

1/2

1/2

.981381

1.02

1

1

.947497

.965127

1.059125

1.017606

.982699

1

.982456

1

1.037958

1

1/2

1/2

1/2

.960529

1

1.020393

B(0)

.980015

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)

.980392

1.062869

P(0,0)

1

.983134

1.042854

1/2

1

1

.962414

1/2

1.019193

.981169

1.02

1/2

1.062869

1

1/2

.937148

.978637

1

.957211

1

1.022406

.978085

1

1.068337

.979870

1.042854

1

1/2

1/2

1

.953877

.976147

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.

.985301

1

1

1.037958

1/2

.967826

1.016031

.984222

1.054597

1

1/2

1/2

.981381

1.02

1

1

.947497

.965127

1.059125

1.017606

.982699

1

.982456

1

1.037958

1

1/2

1/2

1/2

.960529

1

1.020393

B(0)

.980015

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)

.980392

1.062869

P(0,0)

1

.983134

1.042854

1/2

1

1

.962414

1/2

1.019193

.981169

1.02

1/2

1.019193

1

1/2

.937148

.978637

1

.957211

1

1.022406

.978085

1

1.068337

.979870

1.042854

1

1/2

1/2

1

.953877

.976147

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 theTree.