In Hull's book 'Options, Futures and Other derivatives', author said that when price of underlying asset S is strongly positively correlated with the interest rate, future price is slightly larger than forward price for same contract.

I understand his description under that assumption.

Then, in a real world, Is forward price for stock or bond larger than future price for the same underlying asset if two contracts are equal?

It's because as far as I know, bond price or stock price both are in general negatively correlated with interest rate.

Am I right?

(Actually, I think most investment assets are negatively correlated with interest rate, because people will take more risk to get an extra income when interest rate is low.)


For equities, the futures contracts are so short dated that there is no significant correction between futures and forwards. In any case, the corrleation between equities and rates averages fairly close to zero over the long term.

For bonds, there is obviously a large negative correlation with rates. However once again, the futures contracts that are traded are so short dated that the correction is still negligible.

The Eurodollar contract is the futures contract where the convexity correction is highly significant. That's because the contracts are long dated, with a high negative correlation with rates.


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