May 2003
Beginner
288 pages
12h 25m
English
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arbitrage trade, and is known as the cost of carry. If the running yield on the bond is higher than
the funding cost (the repo rate) this is positive funding or positive carry. Negative funding
(negative carry) is when the repo rate is higher than the running yield. The level of (r rc)will
determine whether the futures price is trading above the cash market price or below it. If we have
positive carry (when rc > r) then the futures price will trade below the cash market price, known
as trading at a discount.Wherer > rc and we have negative carry then the futures price will be at a
premium over the cash market price. If the net funding cost was