标题: silly reverse cash and carry Q [打印本页] 作者: Viceroy 时间: 2011-7-13 16:58 标题: silly reverse cash and carry Q
this is silly because this is not the first time i am reading this material, however, only now has this question been raised in my head!
in the chapter on commodity fwds, in a reverse cash and carry arbitrage, if we take a long position in a fwd contract @ $0.20, why is our cash flow in Yr 1 = $0.20-F(0,1)?? Arent we supposed to be paying $0.20 at yr 1 ??
please tell me its a stupid question else i will wonder how i never picked this up last yr.....作者: justin88 时间: 2011-7-13 16:58
I also found it silly initially but then looked again after you posted. What this is saying is if you short forward transaction, at year 1 = $.20 - F(0,1), means you are paying F(0,1) and receiving the collateral worth at sport which is $.20. So the equation is good when the forward price is not equal to $.20. So in this case its $.20 - $.20.作者: cityboy 时间: 2011-7-13 16:58
if we short the forward, we will be receiving F(0,1) and not paying...作者: ohai 时间: 2011-7-13 16:58
why did the long position in the first post become a short position on the 2nd post?
if you took a long position you bought the underlying. Now 1 year later - you sell it at the forward price and receive F(0,1).
So if you paid 0.20 - your cash flow is 0.20 - F(0,1) - a net outflow.
