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Forward contracts and futures contracts

Authors
Journal
Journal of Financial Economics
0304-405X
Publisher
Elsevier
Publication Date
Volume
9
Issue
4
Identifiers
DOI: 10.1016/0304-405x(81)90004-0
Disciplines
  • Economics

Abstract

Abstract This paper provides a detailed discussion of the similarities and differences between forward contracts and futures contracts. Under frictionless markets and continuous trading, simple arbitrage arguments are invoked to value forward contracts, to relate forward prices and spot prices, and to relate forward prices and futures prices. We also argue that forward prices need not equal futures prices unless default free interest rates are deterministic.

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