Arbitrage, Replications And cost Of Carrying Flashcards
1
Q
A perfectly hedge position consisting in:
Derivative
Asset
Offers what return comparing to de Rf?
A
Equal.
If a Rf position earns a return different than Rf rate,
ARBITRAGE will eliminate the mispricing
2
Q
What is the measure of, for example, S&P 500 dividends?
A
Continuos compounding
“e” - Eulers e
3
Q
Calculation of fwd price in compounded basis
A
Spot usd / eye = $ 1.10
Rf usd = 1.98%
Rf EUR = 2.96%
Fo (1) = 1.10 x e ^ ( priced- based)
