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| Discuss Understanding Cost Of Carry at the Futures within the Traderji.com - Discussion forum for Stocks Commodities & Forex; Dear traderji , creditviolet , ivanboesky & senior members I have following doubts in cash ... |
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#1
19th August 2007, 10:08 AM
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Understanding Cost Of Carry
Dear traderji , creditviolet , ivanboesky & senior members I have following doubts in cash & futures arbitrage can you help me to solve them :
1)a. if more people are buying the future will then the cost of carry go up? If yes then why more people buying the future will increase cost of carry? b. if more people are selling the future will then the cost of carry go down? If yes then why more people selling the future will decrease cost of carry? 2) what are the factors that make cost of carry either go up or down ? 3) how is cost of carry in annualized percentage terms calculated? 
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#2
19th August 2007, 10:22 AM
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Re: Understanding Cost Of Carry
1. Yes, more people buying futures as opposed to cash will push up the CoC. This is because the cost of carry is the annualised premium of the futures to cash. Higher the absolute difference between futures and cash, higher the CoC.
2. Market sentiment/ hedging/ shorting/ possiblity of arbitrage. 3. F = S * exp (r*t) - D. So, r = ln((F+D)/S)/t Where F - Futrues price S - spot price r - cost of carry t - time to expiry D - dividends to be paid during the life of the futures contract
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#3
19th August 2007, 10:46 AM
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Re: Understanding Cost Of Carry
thanks ivanboesky,i would like to know :
1)what does "In" stands for in the cost of carry calculation? with regards, learningcurve
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#4
19th August 2007, 01:49 PM
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Re: Understanding Cost Of Carry
'ln" is LN - natural log
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#5
19th August 2007, 02:01 PM
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Re: Understanding Cost Of Carry
thanks ivanboesky,
1)can you give me an example regarding how to calulate cost of carry with natural log? with regards, learningcurve
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#6
19th August 2007, 02:26 PM
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Re: Understanding Cost Of Carry
In Excel, just input "=LN" and then the formula.
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#7
20th August 2007, 12:06 AM
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Re: Understanding Cost Of Carry
a stupid question but since am a total n00b in derivatives:
does the futures price follow the spot price? or there are many other variables also in the game?
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