Spot contract

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

Fixed Price Versus Spot Price Contracts: A Study in Risk Allocation

Abstract: Thi spaper is concerned with the risk-allocation effects of alternative types of contracts used to set the price of a good tobe delivered in the future. Under a fixed price contract, the price is specified in advance. Under a spot price contract, the price is the price prevailing in the spot market at the time of delivery.These contract forms are examined in the context of a market in which sellers have uncertain production costs and buyers have uncertain valuations. The paper derives and interprets a general condition determining which contract form would be preferred when the seller and/or the buyer is risk averse. In addition, an example is provided in which a spot price contract with a floor price is superior both to a "pure" spot price contract and a fixed price contract.

Commodities for the Long Run

Abstract: Using a novel dataset consisting of daily futures prices going back to 1877, we find that returns of commodity futures indices have, on average, been positive over the long run. Although return premiums are associated with both carry and spot returns, commodity returns in different economic states (inflation up/down, expansion/recession) vary mostly as a result of moves in the underlying spot price. These economic states are important drivers of commodity returns, even after conditioning on whether commodity markets are in backwardation or contango. The evidence supports commodities as a potentially attractive asset class in portfolios of stocks and bonds.

Supply portfolio risk

Abstract: A manufacturer procuring raw materials via a portfolio of fixed-price long-term contracts is exposed to supply and demand side risks. The single period framework developed focuses on the risks arising from demand uncertainty and intentional contract breach by suppliers. It assumes the presence of a spot market that can be effectively used to mitigate the impact of both risks. The event (and probability) of contract breach is determined endogenously via the spot market price evolution. The buyer copes with the supplier breach or with shortfall/excess in demand by trading in the spot market. The extension to portfolio context is based on the CreditRisk+ framework which is well known in finance literature.

The relationship between energy spot and futures prices: Evidence from the Australian electricity market

Abstract: This paper examines the relationship between futures and spot electricity prices for two of the Australian electricity regions in the National Electricity Market (NEM): namely, New South Wales and Victoria. A generalised autoregressive conditional heteroskedasticity (GARCH) model is used to identify the magnitude and significance of mean and volatility spillovers from the futures market to the spot market. The results indicate the presence of positive mean spillovers in the NSW market for peak and off-peak (base load) futures contracts and mean spillovers for the off-peak Victorian futures market. The large number of significant innovation and volatility spillovers between the futures and spot markets indicates the presence of strong ARCH and GARCH effects. Contrary to evidence from studies in North American electricity markets, the results also indicate that Australian electricity spot and futures prices are stationary.