A futures contract will mature in one time step. The current return over one time-step is R = 1.01 and the underlying asset of the future contract is currently worth $27 and has up factor u = 1.1 and down factor d = 0.9. The margin account for the short side of this futures contract currently holds $16. How much will the margin account hold when the futures contract matures if the underlying asset increases in value?
A futures contract will mature in one time step. The current return over one time-step is R = 1.01 and the underlying asset of the future contract is currently worth $27 and has up factor u = 1.1 and down factor d = 0.9. The margin account for the short side of this futures contract currently holds $16. How much will the margin account hold when the futures contract matures if the underlying asset increases in value?
In the first case, the underlying asset for the futures contract has a market value of $27. Specific specifications for this contract include an up factor (u) of 1.1 and a down factor (d) of 0.9. According to these variables, the asset's value may either go up by 10% (u) or down by 10% (d) in a one-time step. The risk-free interest rate is r = ln(R) = 0.00995 per time step since the daily return over the one-time step is R = 1.01, which is. The starting margin account amount on the short side of the futures contract is $16.
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