- Under the assumption of perfect market (no transaction cost and no restriction on short selling), if the current spot price of gold is $500 / oz and the interest rate is 10%, there is no holding cost other than interest cost. According to the pricing model of holding cost theory, may I ask:
(1) What should be the price of gold futures due in 90 days (100 ounces per mouthful of contract)?
(2) If the current price of gold futures expiring in 90 days is $506 / oz, how do you carry out arbitrage strategy?
- Following the above question, if the storage cost rate of holding gold spot is 2% (assuming no transportation and insurance costs), according to the pricing model of holding cost theory, what should be the price of gold futures due in 90 days?
- Continuing with the above question, if the transaction cost rate is 1.5% and there are restrictions on short selling of gold spot, the available capital ratio in the reverse buy hold arbitrage strategy is 80%. What is the possible range of the gold futures price?
- Continue with the above question, but the loan interest rate is 6% and the lending interest rate is 3%. In this case, what is the possible range of the gold futures price?
Sample Solution