We propose to use two futures contracts in hedging an agricultural commodity commitment to solve either the standard delta hedge or the roll-over issue. Most current literature on dual-hedge strategies is based
Are hedging with forwards and futures contracts the same, or are there different risks to be considered when using these two contracts? Explain your answer. Explain the difference between a long hedge and a short hedge used by financial institutions. When is a long hedge more appro...
The parties to the currency future contracts fix the rate today while the actual payment or the delivery is made on the specified date in the future. There are two types of futures:Commodity FuturesandFinancial Futures. In commodity future, the contract is for the commodity such as cocoa or ...
2. Cross Hedging Strategy with Multiple Futures Contracts 2.1 Hedging Strategy with Single Futures Contract Suppose we have a spot contract now with value , which will change by S S δ by the time of maturity. To reduce the risk brought by this contract, we also write a future contra...
When hedging a bond portfolio with futures contracts it is vital to know the BPV of the portfolio. Explain what is meant by the BPV and how this can be calculated. Secondly, by citing a specific example show why the price/yield relationship o...
HedgingwithaFuturesContract Analternativetocontractingprivatelywithabankistocontractfor1,000,000poundswithfuturescontracts.AssumingthatthefuturesrateofexchangeisUSD1.5204perpound,butwillincludetransactionscosts(commissions)of0.2%,wewillnetthefollowingamountwhenwereceivetheonemillionpoundsinsixmonths:4 Hedgingwitha...
Oil Hedging with Futures Contracts Futures contractsare standardized agreements, traded on an exchange or electronic forum, which provide for the sale or purchase of an asset on a specified date in the future. The specified terms of the transaction are: ...
lecture7 Hedging with Futures and Futures Pricing
Futures indicesDynamic hedgingHedging EffectivenessMarkov Regime SwitchingAsymmetric volatilityNon-linear GARCHThis study estimates linear and nonlinear GARCH models to find optimal hedge ratios with futures contracts for some of the main European stock indexes. By introducing nonlinearities through a regime﹕...
Moreover, futures contracts serve effectively their risk management role and compare favourably with results in other international stock index futures markets. Estimation of investor utility functions and corresponding optimal utility maximising hedge ratios yields similar results, in terms of model ...