Work detail

The cost of carry model in stock index futures: theory and reality

Author: Bc. Marika Němcová
Year: 2017 - summer
Leaders: prof. Ing. Oldřich Dědek CSc.
Work type: Bachelors
Language: English
Pages: 79
Awards and prizes:
Abstract: The thesis investigates the pricing efficiency of the commonly used cost of
carry model in pricing stock index futures and its applicability on the German
blue-chip index DAX and related futures contracts in recent years. The work
considers the deviations of the observed futures prices from their theoretical
counterparts as well as the fitness of the model through regression analysis.
The results show that while there are many deviations from the fair values
suggested by the model these are small in magnitude when compared with
the potential transaction costs implying the contracts are efficiently priced.
It is confirmed that there is a cointegrating relationship between futures and
spot index values, however, given the regression analysis results the prices do
not entirely follow the model design. The other part of the analysis focuses
on the behaviour of the basis throughout the life of the relevant futures
contracts. The results suggest that there is indeed a decreasing tendency
towards the expiration of a contract, nevertheless, it is subject to considerable
fluctuations. The paper also documents other factors that might impact
stock index futures prices yet not included in the standard pricing formula.


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