Forward pricing by replication depends on the following assumption:
A) That the nominal interest rate for the cost of carry is positive.
B) That long positions are easier to take in the forward contract than in the spot asset.
C) That the underlying is a traded asset which is storable.
D) That the spot asset is not a financial security.

Question

Quizplus · Accepted Answer

Forward pricing by replication assumes that the underlying asset is storable, meaning it can be held for the duration of the contract without incurring significant storage costs. This allows the replicating portfolio to closely match the cash flows of the forward contract. The other options do not necessarily affect the assumption of replication.

Forward Pricing by Replication Depends on the Following Assumption