Forward Versus Futures Prices
There is a difference between forward and futures prices when interest rates are stochastic. This difference disappears when interest rates are deterministic.
In the language of stochastic processes, the forward price is a martingale under the forward measure, whereas the futures price is a martingale under the risk-neutral measure. The forward measure and the risk neutral measure are the same when interest rates are deterministic.
See Musiela and Rutkowski's book on Martingale Methods in Financial Markets for a continuous time proof of this result. See van der Hoek and Elliott's book on Binomial Models in Finance for the discrete time version of this result.
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Famous quotes containing the words futures and/or prices:
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—Gertrude Stein (1874–1946)
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—Ben Elton (b. 1959)