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In that case you would have to include the cost of carry. But who would hedge Z options with H futures?

QuoteOriginally posted by: MikeNNIn that case you would have to include the cost of carry. But who would hedge Z options with H futures?who wouldn't ? most open interest is in front month ... you hedge your delta with the most liquid and worry about the forward price term structure in some other way.

thanks all for the reply, fyi, think some of the asian indices have quarterly futures contract with monthly options in the first 3 months, so I would be leaning towards adding the borrowing cost. I was referring to cash settled options on the actual index rather than options on the futures (index futures)hopefully I get enough market prices to verify. I was googling around just after posting the question and I found this article http://www.risk.net/risk-magazine/news/ ... strategies about negative repos causing the Nikkei forwards to distort, guess either way, I'll need to put some borrow cost in there.thanks again.