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Futures Pricing Model:
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The Future Price Calculator estimates the theoretical price of a futures contract based on the spot price, interest rate, and time to expiration. This model helps traders and investors understand the fair value of futures contracts in the market.
The calculator uses the futures pricing formula:
Where:
Explanation: The formula accounts for the cost of carry, which includes the interest cost of holding the underlying asset until the futures contract expires.
Details: Accurate futures pricing is crucial for identifying arbitrage opportunities, managing risk, and making informed trading decisions in derivatives markets.
Tips: Enter spot price in rupees, annual interest rate in percentage, and number of days until expiration. All values must be positive and valid.
Q1: Why is the futures price different from the spot price?
A: The futures price includes the cost of carry, which represents the interest cost and other expenses associated with holding the underlying asset until contract expiration.
Q2: What factors can cause deviations from theoretical futures prices?
A: Market sentiment, supply-demand imbalances, dividends, storage costs, and convenience yields can cause actual futures prices to deviate from theoretical values.
Q3: Is this model suitable for all types of futures contracts?
A: This basic model works best for financial futures. Commodity futures may require additional factors like storage costs and convenience yields.
Q4: How accurate is this futures pricing model?
A: The model provides a good theoretical benchmark, but actual market prices may vary due to various market factors and transaction costs.
Q5: Can this calculator be used for options pricing?
A: No, this calculator is specifically for futures pricing. Options require different pricing models like Black-Scholes or binomial models.