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What are the five assumptions underlying the cost- of- carry model for pricing forward contracts? Which...

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?

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Answer #1

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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