What are the five assumptions underlying the cost- of- carry model for pricing forward contracts? Which of these assumptions are most likely to be satisfied in current commodity markets?
What are the five assumptions underlying the cost- of- carry model for pricing forward contracts?
Ans :
* We should have a fixed spot price of the contract.
*The contract should be for a definite period of time.
*We should have an informations like storage cost , expressed as a percentage of the spot price.
* The futures price must be equal to or greater than the spot price of the commodity plus the carrying charges.
* There are no transaction costs or margin requirements.
*Investors can borrow and lend at the same rate of interest.
Which of these assumptions are most likely to be satisfied in current commodity markets?
Ans: Question is incompleete.
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