NO.PZ2023041003000006
问题如下：
Doyle and Kemper discuss
the carry arbitrage model and how they can take advantage of mispricing in bond
markets. Specifically, they would like to execute an arbitrage transaction on a
Eurodollar futures contract in which the underlying Eurodollar bond is expected
to make an interest payment in two months. Doyle makes the following statements:
Statement 1: If
the Eurodollar futures price is less than the price suggested by the carry
arbitrage model, the futures contract should be purchased.
Statement 2: Based
on the cost of carry model, the futures price would be higher if the underlying
Eurodollar bond’s upcoming interest payment was expected in five months instead
of two.
Which of Doyle’s
statements regarding the Eurodollar futures contract price is correct?
选项：
A.Only Statement 1
Only Statement 2
Both Statement 1 and Statement 2
解释：
Doyle’s first
statement is correct. Unless the Eurodollar futures contract’s quoted price is
equal to the no-arbitrage futures price, there is an arbitrage opportunity.
Moreover, if the quoted futures price is less than the no[1]arbitrage
futures price, then to take advantage of the arbitrage opportunity, the
Eurodollar futures contract should be purchased and the underlying Eurodollar
bond should be sold short. Doyle would then lend the short sale proceeds at the
risk-free rate. The strategy that comprises those transactions is known as
reverse carry arbitrage.
Doyle’s second
statement is also correct. Based on the cost of carry model, the futures price
is calculated as the future value of the sum of the underlying plus the
underlying carry costs minus the future value of any ownership benefits. If the
Eurodollar bond’s interest payment was expected in five months instead of two,
the benefit of the cash flow would occur three months later, so the future value
of the benefits term would be slightly lower. Therefore, the Eurodollar futures
contract price would be slightly higher if the Eurodollar bond’s interest
payment was expected in five months instead of two months.
Rule 2 The arbitrageur does not take any market price risk on the total trade, but individual components of the trade may involve price risk.
