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Derivatives and Risk Management, 1st Edition
book

Derivatives and Risk Management, 1st Edition

by Sundaram Janakiramanan
May 2024
Intermediate to advanced content levelIntermediate to advanced
542 pages
27h 26m
English
Pearson India
Content preview from Derivatives and Risk Management, 1st Edition
Interest Rate Futures 183
is gives a yield of:
200,000 × e
r( / ) ×
2
182 360
× e
r( / ) ×
1
91 360
= 200,000 × e
r×(91/360)
e
r×(91/360)
= e
r( / ) × ×
2
2 91 360
× e
r( / ) ×
1
91 360
e
r×(91/360)
= e
r r[( ) / ] × ×
2 1
2 91 360
r = 2r
2
r
1
Note that this is similar to calculating the implied forward rate from the yield curve using the yield on the
91-day and 182-day T-bills.
Suppose the price is not xed at 11% yield. In this case, there will be arbitrage opportunity. For exam-
ple, if the futures price is set at 89.5, or at a yield of 10.5%, we can make arbitrage prot by:
1. Selling a futures contract. On settlement, we will receive INR 194,761.50 ...
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Publisher Resources

ISBN: 9781299447547Publisher Website