Find the discrete time arbitrage bounds assuming

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Assume that the spot(cash) price for sugar was 973.75 cent or 9.7375 per bushel yesterday, january 21, assume that the futures price for July delivery[ exactly 6 months away[ was 9.875.[actually no need to assume, these were the price] lets find the theoretical price(f)(based on the simplest continuous time model) let r=1%

a. then, in theory F =?

b. Find the discrete time arbitrage bounds assuming Tr=1%=.01 and CL=Cb=1/2 OF 1%=.005 AND F=.5 ,IS arbitrage possible?

c. instead assume that F= 10.25, now determine arbitrage profits per bushel and per 5000 bushel contract ,explain how you do this ,what do u buy and sell? Do you pay interest or receive interest ?

d. instead assume that F=9.0000 , is arbitrage possible>? Now determine arbitrage profits per bushel and per 5000 bushel contract, explain how u do this, but do u buy and sell? Do u pay interest or receive interest?

e .determine the arbitrage bounds for the continuous case where q=0,y =.003, r=.007, u=.005, Tr =TrB=TrL=.005 . i know real world numbers are ugly, is arbitrage possible? Use S= 9.7375 and F =9.875

Reference no: EM13720090

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