Question

Why does a full carry model apply so well to the US Treasury bond and S&P 500 futures contracts?

Describe the main features of a long only commodity fund. What are the components of the returns from a long only commodity fund?

Explain the fundamental differences between futures and futures options?

Answer 1

Full carry model include interest cost and storage along with insurance cost.This allows trader to calculate opportunity cost as the money tied up in the contract could have been used to earn somewhere else .

Full carry model apply to treasury bonds and S&P 500 futures as there is an interest cost and insurance cost as well as storage costs associated with futures contract and a trader wants to be compensated for all of these so it is priced accordingly.

Full carry model will apply to US Treasury bonds and S&P 500 contract it can be seen through later contracts which are always trading at a premium because they always include insurance and storage along with Interest cost.