Problem bank
Problem 221 of 333HardFinanceP221
Forward vs futures price with random rates
The one-period rate is today and will be or next period, each with risk-neutral probability . An asset that pays no dividends will be worth 120 at time 2 if rates went up and 80 if they went down. Find its price today, its forward price and its futures price for delivery at time 2. Explain the gap, and say whether the Eurodollar futures rate sits above or below the corresponding forward rate.
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