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Futures

THE ROLE OF FUTURES MARKETS AND EXCHANGES

We conclude this series of posts with a brief look at the role that futures markets and exchanges play in global financial systems and in society. Virtually all participants in the financial markets have heard of futures markets, but many do not understand the role that futures markets play. Some participants do not understand how […]

FUTURES PRICING: A RECAP

We have now examined the pricing of short-term interest rate futures, intermediate- and long-term interest rate futures, stock index futures, and currency futures. Let us recall the intuition behind pricing a futures contract and see the commonality in each of those special cases. First recall that under the assumption of no marking to market, at […]

Pricing futures contracts when there is a convenience yield

Now consider the possibility that the asset might generate nonmonetary benefits that must also be taken into account. The notion of nonmonetary benefits that could affect futures prices might sound strange, but upon reflection, it makes perfect sense. For example, a house is a common and normally desirable investment made by individuals and families. The […]