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The relationship between idiosyncratic volatility and future returns are examined using implied idiosyncratic volatilities on firms with traded options. A strong positive link between implied idiosyncratic risk and future returns was found. Such performance is seen in small and high book-to-market equity firms.

The Samuelson Hypothesis, which states that futures price volatility increases as the futures contract approaches its expiration, is tested on agricultural, metal, energy, and financial futures. There is strong support for the hypothesis in agricultural futures, but none in metal and financial futures.

The effect on the overall market efficiency of the introduction of the mini-futures contract for the Spanish IBEX is studied. The increased use of the mini-futures contract after its introduction had negative impacts on price discovery.

The structure of the implied volatility smile is investigated using the prices of equity options traded on the London International Financial Futures and Options Exchange. The slope of the implied volatility skew is flatter for equity options traded on the exchange than on the Chicago Board of Exchange.

Existence of causal relationships in the financial market, with regard to hedging, risk premium and investor pressures, is evaluated.

This article proposes two value-based standards for setting the initial margin requirements on futures positions based on the observation that the distributions of the payoffs to futures traders and the potential losses to the futures clearinghouse can be described in terms of the payoffs to barrier options. Using both margin standards, we examine the adequacy of initial margin requirements in the crude oil futures market. Our results suggest that, on average, the initial margin requirements set by the New York Mercantile Exchange exceed the minimum margins required under our option-based standards for adequacy.

Normally, shocks in one country's futures market have no effect on other countries' futures market, but it does happen during crises.

Research regarding optimal futures hedging decisions when hedgers is disappointment-averse is given. When the futures contract is a perfect hedge instrument, a disappointment-averse hedger always holds a position close to the full hedge than a nondisappointment-averse hedger.

The final expected value of a stock may also take into account the payment of dividends on the corresponding security. Moreover, the payment of dividends also influences the the dissemination of stock prices at expiry. Furthermore, transaction costs are also taken into account. Transaction costs also affect the expected payoffs of the strategies and its initial cost.

There is a structurally substantial periodicity in petroleum futures spreads. Historically basic buy (sell) and hold trading schemes may be lucrative and in numerous cases, are notably greater than zero after transaction costs of $100 for round-turn trade are considered. It is possible that more advanced studies may generate even better effects since relatively fundamental trading strategies may be lucrative.

The effectiveness of hedging in yield futures is critically contigent on the basis risks. Moreover, the direction of the impact is contingent on the established futures standing. Under a short risk minimizing hedge, a decline in the yield basis risk improves the hedging performance of the risk minimizing short hedge in yield futures, as opposed to the cash marketing strategy. On the contrary, under a long risk minimizing hedge, a decline in the yield basis risk reduces the hedging effectiveness.

The pork belly Cold Storage Reports (CSR) has seasonal impacts since agricultural commodities have highly seasonal production and consumption. There is a negative impact, for instance, in the months of April to June, with the coefficient of May higher than the coefficient of CSR's major variable. Seasonal impact for the months of February, March, August and December is found to be absent while the market cycle is not statistically significant. This finding shows consistency with the cold storage cycle for frozen pork bellies.

Market-specific public information influences trading variance in an illiquid market. An analysis of the municipal bond futures market (MBF) market shows that public announcements of cash instrument-based prices help trading variance achieve levels higher than that of nontrading variance. On the other hand, market-specific public information contributes to the lowering of trading and nontrading variances during delivery months as compared to nondelivery months.

This paper provides insight into the sources of time variation and persistence in volatility by presenting new evidence concerning the price behavior of three index futures contracts and associated stock price indexes (the New York Stock Exchange Composite index, Standard and Poor's 500 index, and Toronto 35 index). Although persistence in the second moments of stock returns distribution is widely documented, the economic explanation for generalized autoregressive conditional heteroskedasticity is not established. Cross-sectional differences in measured persistence indicate that market characteristics thought to impede information flows may not play a significant role in explaining generalized autoregressive conditional heteroskedasticity effects., Introduction This paper investigates time variation and persistence in volatility for three index futures price series and each associated stock price index series. Time variation and persistence in the volatility [...]

The primary goal of futurists is not to predict the future, but to uncover images of possible, probable, and preferable futures that enable people to make informed decisions about their [...]

Time-dependent barrier options prove to be effective when it comes to hedging and investment in the foreign exchange over-the-counter (OTC) market. They are hybrids of regular barrier options and ordinary options that are flexible since they allow investors to determine a barrier period covering a specific time of the option life, either at the beginning (front end) or at the end (rear end). Time-dependent barrier options also allow investors to increase the variety of risk of option being knock-out or during the option life.

Hedge slippage costs can cause the gap between the soybean futures options on the Chicago Board of Trade and Tokyo Grain Exchange. The volume of soybean futures option contracts is greater in the CBT than in TGE as compared to trading in the underlying futures contract. Hedge slippage costs result from the inability of option market makers to generate and sustain delta-neutral hedges, which are consequences of institutional factors and the convexity of options prices.

The bootstrap estimators exhibit greater accuracy than the status quo estimator (SQE) in determining cash settlement price. The approach allows the amount of trimming observations to become optimally estimated. The bootstrap estimators that showed greater accuracy are grounded on trimming or Winsorization. Two bootstrap estimators, such as the adaptive truncated mean (ATM) and adaptive Winsorized mean (AWM), post better performance as compared to other estimators such as the symmetric truncated mean (STM).

Analysis of the Capital Asset Pricing Model was conducted to determine whether the returns on futures contracts are equal to zero and to identify the relationship between realized returns and systematic risk. Results showed that returns on futures is equal to zero only with regard to physical commodities. In addition, it was revealed that an inverse relationship exists between realized returns and systematic risk.

The effect of daily price limits on commodity futures trading was studied using a market-making model. It was shown that traders behave differently during periods wherein price limits are set. The results indicated that traders hold their market positions during days when price limits have been reached. The findings suggest that futures market traders do not anticipate price movements and merely adjust their bids and offers in reaction to the present order flow.

The relationship between the level of trading in currency futures and the variability in underlying exchange rates is investigated due to growing popularity of currency futures. The level of futures trading and the volatility in the spot rates of the British Pound, Canadian Dollar, Japanese Yen, Swiss Franc and the Deutsche Mark are examined. A volatility measure is applied which is consistent with the return distribution of the underlying currencies being studied. Findings show a positive correlation between the level of futures trading and the volatility in exchange rate changes.

The optimal index is the most ideal when creating a price index of stock index futures contracts. It is one of three indices considered for a contiguous price index for futures contracts, the two others being the spliced index and the Clark index. While the spliced index is not advised, the Clark index and the optimal index perform almost similarly. However, calculation of the Clark index entails higher cost and carries uncertainty because of its sample-dependence.

A dynamic relationship exists between trading volume and price variability in crude oil futures markets. The magnitude of trading volume and price change dispersion exhibit symmetry, allowing these markets to be directly unaffected by signs of a price change. The generalized method of moments is useful for studying volume-volatility relationships.

A survey of 10 articles that use long time series derived from futures prices shows that there is lack of consensus regarding the proper method of constructing a futures price time series. This may give the impression that the variable or linking approach used for such time series is not important. However, it was shown that the linking method and the form of the price variable both have significant effects on most statistical tests. Techniques to arrive at the best approach for connecting expiring futures or option contract prices are presented.

A study was conducted to determine the relationship between options trading activity on the Standard and Poor 500 Index and the variability of the underlying cash index. The results show that an increase in the level of options trading follows increased volatility in the cash market, while an increase in options trading is followed by a drop in cash price variability. This indicates that options trading tends to stabilize cash markets.

A study was conducted to investigate the failure of the Chicago Board of Trade's mortgage-backed futures contract. The hedging effectiveness of the contract relative to alternative hedging instruments, cash market size, cash price volatility and contract liquidity was analyzed following Black's (1986) paradigm for determining contract variability. Results showed that contract viability is significantly affected by good cross hedges and the absence of liquidity.

Options on futures spreads (OFS) may be used either as hedging or speculative instruments by producers and traders, respectively. This is discussed in a study which also carried out the valuation of futures contracts, options on futures contracts and crack spread options using Gibson-Schwartz four-state variable system. The study also developed an option-pricing strategy based on a simplified Rubinstein model and enhanced Goldman model.

The channel rule of futures trading can bring profits even though futures prices do not exhibit random walks. This is demonstrated in a comparison of an ARIMA model and Monte Carlo simulations of daily futures prices. Though the rule does not forecast futures prices, it can lead to net profits because it can accurately estimate whether a price fluctuation is negative or positive.

Current currency futures prices convey minimal information that cannot be gleaned from current spot exchange market prices. The cost-of-carry model, one of the most commonly used models in pricing futures, shows that it is effective for contracts with less than 60 days to maturity. A liquidity premium may exist for longer maturities. It was also found that the implied spot rates obtained from currency futures are good indicators of short term future spot rates.

Option-based probability assessments methods are generally considered preferable to other methods such as the use of historical price statistics and the survey of market participants. The option-based method uses futures prices and option premiums which are reflective of the expectations of the market. This method as used for soybeans and corn data for the period 1985-1990 is evaluated in terms of reliability. The reliability factor is tested in relation to the maturity of the options market and the approach used to derive the probability distribution.

A study is made on the effect of the introduction of Standard and Poor's 500 futures contract on the bid-ask spreads in the cash market. This is of particular interest because high bid-ask spreads can be disadvantageous to the interest of investors. Several studies have forecasted a spread increase after the introduction of index futures. W.L. Silber, on the other hand, has contended that index futures can lead to low-cost hedging opportunities for market makers. A test for a simple shift in the mean spread level in the postfutures period of certain traded stocks is made. Then, a test for changes in the mean spread after controlling for the effect of secular shifts in variables is done. Finally, an examination of the proportion of spread is made. The results show that a 3.7% increase in the average proportional spread for the combined sample firms following the introduction of the futures market.

A study was conducted to evaluate research on delivery options. The study focuses on the CBOT (Chicago Board of Trade) Treasury bond futures contract and considers its quality and timing options. It is shown that the CBOT contract is the most popular contractfor the US. In addition, the contract's quality option allows the short to for Treasury bond delivery with at least 15 years remaining until maturity or firstcall date.

The 'relative pricing of multiperiod futures and futures contract under conditions of stochastic interest rates' is explored. The distribution of the terminal value hedging the dialy mark-to-market settlements for a general n-period futures contract is determined. A comparative evaluation of the effects of fixed and variable transaction costs on the pricing relationship between forward and futures prices is presented. It is shown that the uncertainty surrounding the hedger's wealth is proportional to the rate increase and to the number of days of the hedging period.

A valuation model for futures and forward contracts having terminal payouts linked to averages of yields is developed. The implied fair yields of such contracts can be determined by a suitable adjustment on the observed forward yields to maturity. The 30-day interest rate futures contract is used to illustrate the valuation procedure and results show that its fair implied yield is associated to the forward yield to maturity over the delivery month.

Autocorrelation is evident in the analysis of forward and futures contracts. This occurs when contracts are treated as indivisible and resettled. Without the indivisibility condition, the time paths of interest and futures rates would not influence forward-futures price differentials over discrete time methodically. Theoretical analysis of the autocorrelation function further reveals a bias toward time dependency in forward-futures price differentials.

The stable-Paretian model of stock and futures prices distribution is statistically analyzed. Results indicate that there is no real advantage to using the stable-Paretian distribution as simpler models are available for determining the stable distribution of futures prices with or without dependence and/or parameter stationarity. The stable-Paretian model is generally difficult to handle and is unsuitable as a model for futures prices involving a mixture of stables.

The methodology of estimating the hedge ratio of commodity futuresprices using both commodity price fluctuations and price fluctuations of futures contracts as variables is called the time-series regression. Some researchers have, however, suggested that this approach may be inefficient whenfutures contracts have different deliverable grades and options. The suitability of time-series regression was studied using the Chicago Board of Trade wheat futures contracts. It was concluded that regression is appropriate when spot-futures prices cannot be determined.

The effect of rollover completion on closing prices of futures contracts was studied. The rollover of contracts refers to the changing of a maturing contract to a new contract. The rollover of most contracts are effected on delivery dates. A significant factor in rollovers are the price fluctuations reflected on the two contracts. It is suggested that rollovers on delivery dates should be postponed or changed since these result in substantial price fluctuations.

Risk-minimization strategies on futures hedging generally utilize mean-variance (M-V) ratios. These measurements of risk-minimization commonly include the normal distribution of earnings and quadratic utility processes. Some researchers have suggested that mean-Gini hedge ratios are an improvement over M-V ratios because mean-Gini coefficients are second-order stochastic dominant. A model of the mean-Gini coefficient is presented.

Futures traders earn positive profits as a result of luck, not forecasting ability. Traders' forecasting abilities was evaluated by analyzing market data obtained from the Commodity Futures Trading Commission for the period from Jul 1, 1977, to Dec 31, 1981. Nine markets were investigated, including the wheat, cattle, and Treasury bond markets. The results indicated that luck was a determinant of trading success. There appears to be no explanation for the existence of a large group of traders with no forecasting ability, and the reason why traders obtained positive returns was also unclear.

Issues are presented concerning the development of a two-factor-discrete-time-stochastic-volatility model which enables the use of an econometric framework to define the conditional volatility of unexpected interest rate levels and information shocks.

A numerical method to price American options under stochastic volatility is tested.

Issues are presented concerning the effect which price limits can have on the effective margin requirement and default risk for a self-enforcing futures contract. The spillover of unrealized residual shocks is evaluated.

A regime switching model of spot prices was developed to prove that tests for cointegration and estimates of the cointegrating vector are likely to be biased when a sample contains infrequent changes in regime. Several researchers realized that spot and futures prices are not considered in some commodity markets. If ever they are, they come without a cointegrating vector. One belief is that disturbances to excess returns have a unit root persistence, which states that spot and futures do not move together one-for-one in the long run.