Quoted Futures price assuming no arbitrage

[girl1555]

Hi,

Why do we divide Futures price F₀(T) with conversion factor and what has conversion factor got to do with the Quoted Futures price?

There is cheapest-to-deliver option also in the quoted futures price. When do we use that?

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@girl1555

Hi,

Why do we divide Futures price F₀(T) with conversion factor and what has conversion factor got to do with the Quoted Futures price?

There is cheapest-to-deliver option also in the quoted futures price. When do we use that?

You do that to adjust F price for basis risk. Quoted future price may not perfectly match an underlying price.