Arbitrage Using Futures

Use futures and spot relationship to find an arbitrage opportunity.

F = S erT

We learned in the class that when future price is deviated from the price determined from the above formula, an arbitrage opportunity will arise. You will use this case to illustrate if you can find an arbitrage opportunity in a real world.

You may define the parameters on your own or use the following assumption for the parameters:

Interest rate is 5%

Transaction costs for a trade on futures (selling or buying) is $25 per contract 365 days a year

To find spot gold price, you may google "spot gold price" or use the most nearby month futures price as spot price.

Your case report should include the following format: Introduction of the case study, explanation of any related theory, the data sources, analytical results, and conclusion. Assume you have $100,000 to conduct the arbitrage.