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Commodity Derivatives
AFM
Hello Sir, In this problem, or generally, can we not settle futures with actual goods? In that case we wont have to take the extra 1 rs loss (diff in spot and future price) Video Details ------------- Advanced Financial Management - AFM Derivatives Analysis and Valuation #150. O - Illustration #31
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Even if you settle with actual good, net gain loss will be same. In current case you will settle the contract with some gain / loss. Add that to the price realized on spot on date of sale - add all the numbers and you will notice that net price paid / received is same. However there may be a scenario ( very rare) in which on date of settlement futures and spot have slight variation - in such a case both may not give same results - but in real life and practically both scenarios, what you mentioned vs what we solved in the Q will have same net cash gain / loss
Sriram Somayajula Admin
Even if you settle with actual good, net gain loss will be same. In current case you will settle the contract with some gain / loss. Add that to the price realized on spot on date of sale - add all the numbers and you will notice that net price paid / received is same. However there may be a scenario ( very rare) in which on date of settlement futures and spot have slight variation - in such a case both may not give same results - but in real life and practically both scenarios, what you mentioned vs what we solved in the Q will have same net cash gain / loss
Ohh okay sir. This specific chapter is little difficult I have no practical experience or prior knowledge. Glad I took your classes, couldn't imagine doing a self study. Thank you so much for teaching with practical insights, and replying on all the queries.
Thread Starter
Susee ArunachalamOhh okay sir. This specific chapter is little difficult I have no practical experience or prior knowledge. Glad I took your classes, couldn't imagine doing a self study. Thank you so much for teaching with practical insights, and replying on all the queries.
Thank you and appreciate your feedback
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