Thanks a lot in advance to all you helpful souls. If risk-free rate is constant and same for all maturities, then the forward price should equal the futures price (forward = futures price). But this varies where there is a correlation between the underlying asset (S) and interest rates: · If the correlation is strongly positive: futures > forward · If the correlation is strongly negative: futures < forward Why is this impact of correlation different on futures and forwards?

The difference between the futures an the forward is that the futures is MTM and the forwards isn’t. That means that gains and losses in the futures contract are recognized immediately while in forwards contracts they are only recognized at expiration. So if you are long a futures and the futures contract drops, you have to finance the loss. If interest rates are + correlated, that means that you are financing the loss at a lower rate. Conversely, if it increases you have a gain that you immediately recognize and can deposit at a higher rate. (and similar stuff applies to - correlation)

Thats brilliant explanation by Joey. To add, I would say that in today’s environment there could be few exceptions. For eg, even if the correlation is strongly negative, futures need not be less than forward as forward contract carries counterparty risks.