Exercise 1:
1) Assume I buy today the April and sell the May Futures contract. What are my
expectations as to the CAC 40 ? These are the only positions in my portfolio
Answer
If I buy today futures of CAC 40 for the month of April and short the same futures for the
month of May, I expect short term upward movement in the stock which shall be correctified
in the near term. The second reason for such style of investment is to reduce outflow initially
whereby the long position shall result in outflow and short position shall result in inflow in
order to reduce the total outflow. Further, since the future value of April contract shall rise
faster than the contract value of May, I am considering to make gain out of the same. Thus,
this are the two rational for the proposed style of investment.
2) From the settlement prices of December 2020 and December 2021, extract the implied
dividend yield. Compare and discuss. If needed use an interest rate of 0.2% yearly.
The settlement prices of December 2020 is 4120.5 while the settlement price of December
2021is 3941.
Answer
To infer the implied dividend yield the formula used to price forward contracts has to be
manipulated as follows:
q=−¿
q – dividend (per month)
F0 – Future Price
S0 – Underlying Price (CAC40)
T – Time (months)
r – LIBOR (monthly)
Using the December, 2020 and December 2021 future prices the following implied dividend
yields are calculated. TSettlement prices are estimates of the market-maker based on the last
trades of the day while accounting for the trend of the underlying.
2. Settlement

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