Spot contract

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

Determinants of Hedging and Risk Premia in Commodity Futures Markets

Abstract: This paper examines the determinants of commodity futures hedging and of risk premia arising from covariation of the futures price with stock market returns, and with the revenues of producers. Owing to supply shocks that stochastically redistribute real wealth (surplus) between producers and consumers, and to limited participation in the futures market, the total risk premium in the model is not proportional to the contract's covariance with aggregate consumption. Stock market variability interacts with the incentive to hedge, causing the producer hedging component of the risk premium to increase (decrease) with income elasticity, for a normal (inferior) good. Production costs that depend on output raise the premium. We argue that output and demand shocks will typically be positively correlated, raising the premium. High supply elasticity reduces the absolute hedging premium by reducing the variability of spot price and revenue.

Ship funds as a new asset class: An empirical analysis of the relationship between spot and forward prices in freight markets

Abstract: Over the last decade, various new asset classes have emerged as alternatives to the more traditional investments. Although they appear attractive at a first glance, there exists hardly any historical performance track record, and experience with the return generating variables is limited. For ship funds and the valuation of shipping projects, the prevailing freight rates are important price-determining factors. Therefore, knowledge about the time series properties of spot and forward freight rates is essential for a better understanding of the return generating process of ship funds. There are, however, several peculiarities. Because shipping is a nonstorable service, forward prices need not to be linked to spot prices by any direct arbitrage relationship. We test the implications of this notion by using data for Panamax size bulk carriers and find that even in informationally efficient markets spot freight rates are highly autocorrelated. In addition, spot and forward freight rates are cointegrated, and the equilibrium is established by spot rates converging to forward rates. An extension of the standard vector error correction model reveals time-variation in the adjustment speed. Overall, our empirical findings suggest that the time series properties of freight rates need to be well understood before investing in ship funds. Another important aspect is whether ship funds should hedge their freight rate exposure in the forward market to reduce the return volatility or whether investors can achieve the same outcome by holding ship funds in a portfolio context.

Price discovery and volatility spillover: an empirical evidence from spot and futures agricultural commodity markets in India

Abstract: Price discovery and spillover effect are prominent indicators in the commodity futures market to protect the interest of consumers, farmers and to hedge sharp price fluctuations. The purpose of this paper is to investigate empirically the price discovery and volatility spillover in Indian agriculture spot and futures commodity markets.,This study uses Granger causality, vector error correction model (VECM) and exponential generalized autoregressive conditional heteroskedasticity (EGARCH) to examines the price discovery and spillover effects for nine most liquid agricultural commodities in spot and futures markets traded on National Commodity and Derivatives Exchange (NCDEX).,The VECM results show that price discovery exists in all the nine commodities with futures market leading the spot in case of six commodities, namely soybean seed, coriander, turmeric, castor seed, guar seed and chana. Whereas in case of three commodities (cotton seed, rape mustard seed and jeera), price discovery takes place in the spot market. The Granger causality tests indicate that futures markets have stronger ability to predict spot prices. Supporting these, the results from EGARCH volatility test reveal that there exist mutual spillover effects on futures and spot markets. Thus, it could be inferred that futures market is more efficient in price discovery of agricultural commodities in India.,These results can help the market participants to benefit by hedging out the uncertainty and the policymakers to design futures contracts to improve the efficiency of the agricultural commodity derivatives market.,The findings provide fresh view on lead–lag relationship between future and spot prices using the latest data confirming that futures market indeed is dominant in price discovery.,There are very few studies that have explored the efficiency of the agricultural commodity spot and futures markets in India using both price discovery and volatility spillover in a detailed manner, especially at the individual agriculture commodity level.

Distributed spot pricing in radial distribution systems

Abstract: Spot pricing is a method for pricing electricity that maximizes the economic efficiency of the power system. The authors derive an expression for the spot prices in a radial distribution system, in terms of system quantities such as power line flows. The system's radial structure leads to simplified spot price expressions. They do not assume that all the problem data is available at one location (i.e. to the utility). The proposed pricing algorithm addresses the issue of decentralized knowledge by using a distributed processing scheme, which emphasizes local computations. They also show how line flow constraints can be implemented as an integral part of the proposed spot pricing algorithm. >