Futures Arbitrage. Program Trading. Essentially a cash and carry, or reverse cash and carry, arbitrage between an index and a basket of stocks related to the index.
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F = 405 * (1.05)
= 409.97Program Trading cont’d
Thus, futures are too high, so sell futures,
buy stocks, and borrow.
contracts, or, -------------- * .90 = 42.86
futuresProgram Trading cont’d
$10,000,000 * (1.05)(3/12) - $10,000,000 = $122,722.34
in interest on the borrowings.