Forward and Futures Contracts

2019 ◽  
pp. 236-243
Author(s):  
Tomas Björk
Keyword(s):  
Option Pricing ◽  
Elementary Theory ◽  
Futures Contracts ◽  
Forward Contracts ◽  
Martingale Approach ◽  
Futures Contract ◽  
Pricing Formula

This chapter contains a substantial extension of the more elementary theory of forwards and futures developed in Chapter 7. We derive a general pricing formula for forward contracts. Futures contracts are discussed in some detail and it is shown that a futures contract can be viewed as a certain price dividend pair. Using the dividend theory of Chapter 16 we derive formulas for futures contracts using the martingale approach. As an application we derive the Black-76 futures option pricing formula.

EFFECTIVE CROSS HEDGING: EVIDENCE FROM PHYSICAL CRUDE PALM OIL AND ITS INTER-RELATED AGRICULTURAL FUTURES CONTRACTS

2018 ◽  
Vol 17 (2) ◽  
pp. 123
Author(s):  
Noryati Ahmad ◽  
Ahmad Danial Zainudin ◽  
Fahmi Abdul Rahim ◽  
Catherine S F Ho
Keyword(s):  
Palm Oil ◽  
Futures Contracts ◽  
Crude Palm Oil ◽  
Oil Futures ◽  
Futures Contract ◽  
Agricultural Futures ◽  
Cross Hedging ◽  
Optimal Hedge ◽  
Excessive Speculation ◽  
Chicago Board Of Trade

Since its establishment, Crude Palm Oil futures contract (FCPO) has been used to directly hedge its physical crude palm oil (CPO). However, due to the excessive speculation activities on crude palm oil futures market, it has been said to be no longer an effective hedging tool to mitigate the price risk of its underlying physical market. This triggers the need for market players to find possible alternatives to ensure that the hedging role can be executed effectively. Thus this investigation attempts to examine whether other inter-related grains and oil seed futures contracts could serve as effective cross-hedging mechanisms for the CPO. Weekly data of inter-related futures contracts from Chicago Board of Trade (CBOT) and Dalian Commodity Exchange (DCE) are employed to cross hedge the physical crude palm oil prices. The study starts from 2006 until 2016. Empirical results indicate that FCPO is still the best futures contract for hedging purposes while Chicago Soybean (CBOTBO) provides second best alternative if cross-hedging is considered. Keywords: Crude palm oil, Crude palm oil futures, Cross Hedging, Optimal Hedge Ratio, Effective Hedging

scholarly journals Existence of Maximum Entropy Problem Solution in a General N-Dimensional Case

2018 ◽  
pp. 97-102
Author(s):  
Ruben Gevorgyan ◽  
Narek Margaryan
Keyword(s):  
Option Pricing ◽  
Maximum Entropy ◽  
Optimization Algorithms ◽  
Dimensional Case ◽  
Computational Time ◽  
Problem Solution ◽  
Call Options ◽  
Price Range ◽  
Risk Neutral ◽  
Pricing Formula

In the following paper, we will define conditions, which need to be satisfied in order for the maximum entropy problem applied in European call options to have a solution in a general n-dimensional case. We will also find a minimum right boundary for the price range in order to have at least one risk neutral measure satisfying the option pricing formula. The results significantly reduce the computational time of optimization algorithms used in maximum entropy problem.

scholarly journals Reverse Bonus Certificate Design and Valuation Using Pricing by Duplication Methods

2015 ◽  
Vol 62 (3) ◽  
pp. 277-289
Author(s):  
Martina Bobriková ◽  
Monika Harčariková
Keyword(s):  
Option Pricing ◽  
Exotic Options ◽  
Pricing Models ◽  
Underlying Asset ◽  
Replication Method ◽  
Maturity Date ◽  
Derivative Market ◽  
Replicating Portfolio ◽  
Pricing Formula

Abstract In this paper we perform an analysis of a capped reverse bonus certificate, the value of which is derived from the value of an underlying asset. A pricing formula for the portfolio replication method is applied to price the capped reverse bonus certificate. A replicating portfolio has profit that is identical to profit from a combination of positions in spot and derivative market, i.e. vanilla and exotic options. Based upon the theoretical option pricing models, the replicating portfolio for capped reverse bonus certificate on the Euro Stoxx 50 index is engineered. We design the capped reverse bonus certificate with various parameters and calculate the issue prices in the primary market. The profitability for the potential investor at the maturity date is provided. The relation between the profit change of the investor and parameters’ change is detected. The best capped reverse bonus certificate for every estimated development of the index is identified.

scholarly journals The analysis of return on speculative trading with futures contracts of agriculture commodities in the context of the currency risk

2007 ◽  
Vol 55 (3) ◽  
pp. 133-142
Author(s):  
Oldřich Šoba
Keyword(s):  
Exchange Rate ◽  
Futures Contracts ◽  
Financial Assets ◽  
Agricultural Commodities ◽  
Currency Risk ◽  
Futures Contract ◽  
The World ◽  
Speculative Trading ◽  
Relative Change ◽  
Main Factor

The paper is focused on analysis of return on speculative operations with futures contracts from the view of participators not undertaking and undertaking the currency risk. The currency risk is determined by unexpected change of relevant exchange rate (currency denomination of futures contracts / domestic currency of participator). The paper analyses the basic factors influencing the profitability of these operations such as relative change of futures contract value, leverage incidence and relative change of relevant exchange rate. The paper is focused on futures contracts of the world most important agricultural commodities. The conclusion of the paper for participators not undertaking the currency risk is following: The relative change of futures contract is main factor for the calculation of return on speculative operation. This change is multiplied by leverage incidence finally. The conclusion of the paper for participators undertaking the currency risk is following: The relative change of relevant exchange rate is not usually relevant for the calculation of return on speculative operation. Main factor is the relative change of futures contract because this change is multiplied by leverage incidence finally but the relative change of relevant exchange rate isn’t.Neverthless the conclusions of this paper are not valid only for futures contracts of agricultural commodities but generally also for other commodity futures contracts and futures contracts where underlying assets are not commodities but for example financial assets.

FORWARD CONTRACTS AND FUTURES CONTRACTS

2008 ◽  
pp. 237-246
Author(s):  
Robert A. JARROW ◽  
George S. OLDFIELD
Keyword(s):  
Futures Contracts ◽  
Forward Contracts

scholarly journals Holiday effects in the South African futures market

1998 ◽  
Vol 29 (3) ◽  
pp. 119-133 ◽  
Author(s):  
C. F. Smit ◽  
E. V.D.M. Smit
Keyword(s):  
South African ◽  
Futures Market ◽  
Weekend Effect ◽  
Futures Contracts ◽  
The South ◽  
Futures Contract ◽  
Holiday Effect ◽  
Holiday Effects ◽  
Daily Returns ◽  
Local Research

International and local research in share markets offered evidence of a holiday effect. Pre-holiday mean returns are significantly higher than on other trading days. The holiday effect cannot be separated from the weekend effect, as holidays which fall on Fridays and Mondays also influence the weekend analysis. Both these effects exist in their own right. Research on international futures markets supports the existence of a holiday effect. The present study investigates the holiday effect on daily returns of the All Gold Near Futures contract, the All Industrial Near Futures contract and the All Share Near Futures contract in the South African futures market. A distinction is made between pre-holidays, post-holidays and non-holidays. None of the near futures contracts exhibit a significant holiday effect, although signs of a holiday effect are present. It is further shown that the month-end effect is not strongly influenced by the holiday effect. It is also concluded that the pre-holiday effects are not large enough to be exploited on an on-going basis in the South African futures market.

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