The spot index value = 2,280.90
SP CME S&P 500 FUTURES
SETTLEMENT PRICES AS OF 01/30/17 06:00 PM (CST)
MTH/ ------------- DAILY ----------------------- PT ----- PRIOR DAY --
STRIKE OPEN HIGH LOW LAST SETT CHGE EST.VOL SETT VOL INT
MAR17 2283.10 2285.30B 2264.00 2275.80 2276.00 -13.10 1798 2289.10 4146 64465
JUN17 2273.30 2273.30 2259.00A 2270.00B 2270.90 -13.10 16 2284.00 485 1764
SEP17 ---- ---- 2254.70A 2265.70B 2266.60 -13.10 2279.70 22
DEC17 ---- ---- 2251.20A 2262.20B 2263.10 -13.10 2276.20
MAR18 ---- ---- 2257.10A 2268.10B 2269.00 -13.10 2282.10
JUN18 ---- ---- 2263.00A 2274.00B 2274.90 -13.10 2288.00
SEP18 ---- ---- 2268.90A 2279.90B 2280.80 -13.10 2293.90
DEC18 ---- ---- 2258.00A 2269.00B 2269.90 -13.10 2283.00
DEC19 ---- ---- 2281.10A 2292.10B 2293.00 -13.10 2306.10
DEC20 ---- ---- ---- ---- 2316.10 -13.10 2329.20
DEC21 ---- ---- ---- ---- 2339.20 -13.10 2352.30
TOTAL EST.VOL VOLUME OPEN INT
TOTAL 1814 6304 66241
(a) Calculate the theoretical price for the S&P500 index futures maturing in December 2017. Assume that the dividend yield on the index is 1.5% per year continuously compounded. Use the above quotes to determine whether there is an arbitrage opportunity. If there is an opportunity, show how the arbitrage would be made, using a payoff table. Assume that the futures contract expires at the end of the month, and use a T-bill rate of 0.70% per year continuously compounded. What are the potential problems with the arbitrage?