3.9 Assumptions and notations The market participants are subject to no transaction costs when they trade are subject to the same tax rate on all net trading profits can borrow money at the same risk-free rate of interest as they lend money take advantage of arbitrage opportunities as they occor Notations T: time when the forward contract matures ( years) So: price of asset underlying the forward contract today Fo: forward price today r: risk-free rate of interest per annual with continuous compounding, for an investment maturing at T Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, C 2003, Shanghai Normal University3.9 Options, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, © 2003, Shanghai Normal University Assumptions and Notations The market participants • are subject to no transaction costs when they trade • are subject to the same tax rate on all net trading profits • can borrow money at the same risk-free rate of interest as they lend money • take advantage of arbitrage opportunities as they occor Notations: T: time when the forward contract matures (years) S0 : price of asset underlying the forward contract today F0 : forward price today r: risk-free rate of interest per annual, with continuous compounding, for an investment maturing at T