Spot contract

About: Spot contract is a research topic. Over the lifetime, 3437 publications have been published within this topic receiving 91599 citations.

Interest rate forecasts, state price densities and risk premium from Euribor options

Abstract: In this paper we study option-implied interest rate forecasts and the development of risk premium and state prices in the Euribor futures option market. Using parametric and non-parametric statistical calibration, we transform the risk-neutral option implied densities for the Euribor futures rate into real-world densities. We investigate the period from the introduction of the Euro in 1999 until December 2012. The estimated densities are used to provide a measure for the interest rate risk premium and state prices implicit in the futures market. We find that the real-world option-implied distributions can be used to forecast the futures rate, while the forecasting ability of the risk-neutral distributions is rejected. The state price densities in the market show a U-shaped curve suggesting that investors price higher states with high and low rates compared to the expected spot rate. However, we show that, in general, state prices have a more pronounced right tail, implying that investors are more risk averse to increasing interest rates. We also document a negative market price of interest rate risk which generates positive premium for the futures contract.

Time-varying long-run mean of commodity prices and the modeling of futures term structures

Abstract: The exploration of the mean-reversion of commodity prices is important for inventory management, inflation forecasting and contingent claim pricing. Bessembinder et al. [J. Finance, 1995, 50, 361–375] document the mean-reversion of commodity spot prices using futures term structure data; however, mean-reversion to a constant level is rejected in nearly all studies using historical spot price time series. This indicates that the spot prices revert to a stochastic long-run mean. Recognizing this, I propose a reduced-form model with the stochastic long-run mean as a separate factor. This model fits the futures dynamics better than do classical models such as the Gibson–Schwartz [J. Finance, 1990, 45, 959–976] model and the Casassus–Collin-Dufresne [J. Finance, 2005, 60, 2283–2331] model with a constant interest rate. An application for option pricing is also presented in this paper.

Effects of Contract Provisions on the Success of a Futures Contract

Abstract: This article investigates the effect of contract provisions in attracting hedgers to a futures market. The new pork bellies futures contract initiated in 1961 resulted in very light trading during the first 18 months. Six provisions of the contract which caused dissatisfaction among traders were those dealing with shrinkage allowance, limitations on storage time, grades and standards, transportation allowance, methods of storage protection, and delivery time. After these provisions were revised in 1962 and 1963 in such a way as to bring them into closer correspondence with trade practices, hedger utilization increased rapidly and steadily.

Equilibrium adjustment, basis risk and risk transmission in spot and forward foreign exchange markets

Abstract: This study investigates the risk transmission between the spot and forward foreign exchange markets. In particular, the effect of innovation basis and signs of shocks in both markets are assessed. The market is less predictable when the spot and forward markets have experienced shocks of opposite signs. The spot market and the forward market are less predictable when both the spot and forward markets have experienced higher uncertainty in the previous periods, but the forward market is influenced more by the uncertainty of its own.