Find a condition on zero-coupon prices


Problem

In this question, the instantaneous risk free rate r follows an arbitrary stochastic process. Consider a forward contract, entered into at date 0, to buy a non-dividend paying underlying at date T.

i. Find the marked-to-market value Vt of this contract at time t < T in terms of the spot price at date t, St, and the forward price at date 0, F0.

ii. Now suppose that St = S0, i.e. the price of the underlying at date t is the same as its price at date 0. Find a condition on zero-coupon prices under which Vt = 0. Interpret.

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Finance Basics: Find a condition on zero-coupon prices
Reference No:- TGS03336526

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