Definition of Futures Contract
Following Björk we give a definition of a futures contract. We describe a futures contract with delivery of item J at the time T:
- There exists in the market a quoted price F(t,T), which is known as the futures price at time t for delivery of J at time T.
- The price of entering a futures contract is equal to zero.
- During any time interval, the holder receives the amount . (this reflects instantaneous marking to market)
- At time T, the holder pays F(T,T) and is entitled to receive J. Note that F(T,T) should be the spot price of J at time T.
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