30 years: Financial markets trader
In the second video, Abdulla describes how the spot, and forward or futures prices are connected by the arbitrage-free principle. The relationship is based on the costs of carry. In efficient markets, arbitrage activity will generally ensure that the prices in the respective markets are maintained at levels consistent with that principle.
In the second video, Abdulla describes how the spot, and forward or futures prices are connected by the arbitrage-free principle. The relationship is based on the costs of carry. In efficient markets, arbitrage activity will generally ensure that the prices in the respective markets are maintained at levels consistent with that principle.
6 mins 23 secs
Buying and selling of assets can be undertaken in any of three markets, spot, forward and futures markets. There is usually a difference in the prices prevailing in spot and forward/futures markets. The difference can be explained by the principle of no arbitrage or arbitrage free pricing principle. The arbitrage free principle is based on the costs of carry- usually referred to as the carry.
Key learning objectives:
Understand the connection between the spot price and a forward or futures price
Describe the cost of carry, and its components
Understand how to calculate the forward price or futures fair value
Define the terms Contango and Backwardation
05:39
05:38
03:58
04:56
04:34
04:40
05:42
04:41
04:16
07:58
05:14