According to the no-arbitrage formula for futures contracts there should be a: A) positive correlation between the basis and both interest rates and the spot price. B) negative correlation between the basis and interest rates and a positive correlation between the basis and the spot price. C) positive correlation between the basis and interest rates and a negative correlation between the basis and the spot price. Click for Answer and Explanation The equation for the no-arbitrage price of a futures contract is FP = S0 × (1 + R)T, and the equation for the basis is: basis = futures price – spot price. Clearly an increase in R will increase the basis. The basis grows proportionally with the spot price. So the basis is positively correlated with both the interest rate and the spot price. I thought Basis = Spot Price - Futures Price
What is basis??? Is that value? Value of a forward future = Spot - F Price = S0*(1+r)^T
I think basis is Spot - Forward
basis - s - f
Basis is spot - forward according to wiki … http://en.wikipedia.org/wiki/Basis_future Do we trust wiki ?
that is 100% right… seems too easy right