How is the future price arrived at?
Future price is nothing but the current market price plus the interest cost for the tenure of the future.
This interest cost of the future is called as cost of carry.
If F is the future price, S is the spot price and C is the cost of carry or opportunity cost, then
F=S+C
F = S + Interest cost, since cost of carry for a finance is the interest cost
Thus,
F=S (1+r)^T
Where r is the rate of interest and T is the tenure of the futures contract.
The rate of interest is usually the risk free market rate.
Future price is nothing but the current market price plus the interest cost for the tenure of the future.
This interest cost of the future is called as cost of carry.
If F is the future price, S is the spot price and C is the cost of carry or opportunity cost, then
F=S+C
F = S + Interest cost, since cost of carry for a finance is the interest cost
Thus,
F=S (1+r)^T
Where r is the rate of interest and T is the tenure of the futures contract.
The rate of interest is usually the risk free market rate.
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