Shop till you drop

Virtually all participants in the financial markets have heard of futures markets, but many do not understand the role that futures markets play. Some participants do not understand how futures markets function in global financial systems and often look at futures with suspicion, if not disdain. In earlier posts, we discussed the purposes of derivative [...]

Now let us proceed to the pricing of futures contracts. As we did with forward contracts, we consider the case of a generic underlying asset priced at $100. A futures contract calls for delivery of the underlying asset in one year at a price of $108. Let us see if $108 is the appropriate price [...]