Futures Contracts Research Articles

Efficient likelihood estimation of Heston model for novel climate-related financial contracts valuation

We propose novel Bitcoin-denominated derivatives contracts on carbon bonds. We consider a futures contract on carbon bonds where its price is expressed in terms of bitcoins. Then, we put forward options on a futures contract of the former type. Governments can use such contracts to hedge climate change and influence the prices of carbon bonds and cryptocurrencies. We show how these derivatives transfer volatility to the bitcoin market without a negative effect in the carbon bonds market. Since the aforementioned options are not yet traded in the market, we price them by assuming that the underlying is driven by the well-known Heston model, where the model parameters are estimated by a novel method based on Shannon wavelets. Heston model belongs to the class of stochastic volatility (SV) models. The discrete observations from the SV model can be seen as a state-space model, that is, a stochastic model in discrete-time which contains two sets of equations, the state equation and the observation equation. While the first describes the transition of a latent process in time, the second shows how an observer measures the latent process at each time period. We infer the properties of the latent variable by means of a filtering algorithm, and we estimate the parameters of the model via maximum likelihood. The evaluation of the likelihood function is a time-consuming task that involves updating and prediction steps of the state variable, leading to the computation of complicated integrals. We calculate these integrals by means of an integration method based on Shannon wavelets, and compare the root mean square error (RMSE) of the estimation with state-of-the-art methods. The results show that the RSME is dramatically reduced in a short CPU time with the use of wavelets.

Smart Contracts as a Tool to Support the Challenges of Buying and Selling Coffee Futures Contracts in Colombia

In Colombia, coffee futures contracts represent essential financial agreements that allow producers and buyers to establish prices, quality, and conditions for future transactions in the coffee market. Despite the evident benefits of stability and predictability, this practice faces significant sustainability challenges that threaten its long-term viability. One of the reasons is the significant lack of transparency in the supply chain. Farmers, affected by abrupt price fluctuations and adverse weather conditions such as the El Niño phenomenon, experience an increase in market prices, leading to the non-delivery of the final product, and contract breaches as they find better prices in the local market. In this context, smart contracts emerge as a promising technological solution to address these problems. These contracts enable the verification of each step in the process, from harvest to final sale, within a blockchain. Therefore, this research designs a smart contract managed through a platform called SmartBeanFutures, which records the clauses of futures contracts using the IERC721 framework, allowing the generation of a unique and non-repeatable asset. It aims to sell, promote, and manage coffee sale prices during the agreement’s signing, creating a transparent environment for chain actors. This proposal undergoes evaluation in a test environment, providing farmers access to the designed platform. Following the validation of the proposal, it was identified that over 74% would use this type of contract in their agricultural processes, highlighting that implementing this technology contributes to eliminating intermediaries in the chain and gives farmers more control over their participation in the market.

An evaluation of the adequacy of Lévy and extreme value tail risk estimates

This study investigates the simplicity and adequacy of tail-based risk measures—value-at-risk (VaR) and expected shortfall (ES)—when applied to tail targeting of the extreme value (EV) model. We implement Lévy–VaR and ES risk measures as full density-based alternatives to the generalized Pareto VaR and the generalized Pareto ES of the tail-targeting EV model. Using data on futures contracts of S&P500, FTSE100, DAX, Hang Seng, and Nikkei 225 during the Global Financial Crisis of 2007–2008, we find that the simplicity of tail-based risk management with a tail-targeting EV model is more attractive. However, the performance of EV risk estimates is not necessarily superior to that of full density-based relatively complex Lévy risk estimates, which may not always give us more robust VaR and ES results, making the model inadequate from a practical perspective. There is randomness in the estimation performances under both approaches for different data ranges and coverage levels. Such mixed results imply that banks, financial institutions, and policymakers should find a way to compromise or trade-off between “simplicity” and user-defined “adequacy”.

To hedge or not to hedge? Cryptocurrencies, gold and oil against stock market risk

The article aims to determine whether any hedging strategy against stock market risk, performed using instruments popular in the literature (gold, cryptocurrencies and oil), can beat index futures. As a hedging strategy, we understand a pair-wise portfolio consisting of a long position in stocks and a short position in a hedging instrument put together to minimise the portfolio variance. As a benchmark, we analyse optimal and naive hedging strategies with futures contracts. We demonstrate that, regardless of the stock market, the best hedging strategy focused on variance minimisation requires using index futures. Both strategies: the optimisation-based one and the naive one, beat the dynamic strategies utilising the remaining hedging assets. Therefore, from a risk-minimisation point of view, investors have no motivation to implement cryptocurrencies, gold or oil in hedging strategy against stock market risk. The results are robust with respect to hedging against tail risk.

Reconciling Open Interest with Traded Volume in Perpetual Swaps

Perpetual swaps are derivative contracts that allow traders to speculate on, or hedge, the price movements of cryptocurrencies. Unlike futures contracts, perpetual swaps have no settlement or expiration in the traditional sense. The funding rate acts as the mechanism that tethers the perpetual swap to its underlying with the help of arbitrageurs. Open interest, in the context of perpetual swaps and derivative contracts in general, refers to the total number of outstanding contracts at a given point in time. It is a critical metric in derivatives markets as it can provide insight into market activity, sentiment and overall liquidity. It also provides a way to estimate a lower bound on the collateral required for every cryptocurrency market on an exchange. This number, cumulated across all markets on the exchange in combination with proof of reserves, can be used to gauge whether the exchange in question operates with unsustainable levels of leverage, which could have solvency implications. We find that open interest in Bitcoin perpetual swaps is systematically misquoted by some of the largest derivatives exchanges; however, the degree varies, with some exchanges reporting open interest that is wholly implausible to others that seem to be delaying messages of forced trades, i.e., liquidations. We identify these incongruities by analyzing tick-by-tick data for two time periods in 2023 by connecting directly to seven of the most liquid cryptocurrency derivatives exchanges.

Financialization and Dynamics of Currency Futures Market during COVID-19: Evidence from India

This study examines inter-relationship and impact of COVID-19 on Indian currency and equity futures markets during the period of financial crisis. In such period, investors look for alternative asset classes to hedge against risk as observed during Global Financial Crisis. This study examines whether same phenomenon was observed after COVID-19 in India considering currency futures as an alternate asset class. For this purpose daily exchange rate of Indian Rupee with British Pound Sterling, Japanese Yen, Euro and United States Dollar and for equity futures, near-month NIFTY 50 futures contracts are used. After examining stationarity of data, Co integration test, Granger causality and Bi-variate correlation is applied. ARCH and DCC-GARCH model is employed to allow for heteroscedasticity and time variation in correlation. It is observed that YEN, JPY and USD display significantly negative correlation with Nifty futures. Currency futures is causing Nifty futures during COVID-19 period and leads Nifty futures by one day. However, it is other way around during pre-COVID-19 period. Long-run co-integration is not evident. ARCH effect is present in both time series and except for insignificant short-run shock persistence during COVID-19 period, there exists time varying correlation between currency returns and Nifty.

Cross-hedging wild salmon prices

A number of studies have documented that there is a global market for salmon, in which wild and farmed salmon have a common price determination process. Recent studies report that Norwegian farmed salmon spot prices are also highly correlated with the Fish Pool salmon future contract price, indicating that the futures market can be an important risk management tool, as producers and buyers can hedge price risk. Here, we investigate whether the wild salmon prices can be cross-hedged against the Fish Pool salmon future contract, by testing whether the two prices are correlated.. If so, the Fish Pool future contracts can be used as a risk management tool for fishers and buyers of wild salmon. We find that this is the case, providing an additional link between wild and farmed salmon specifically, and between fisheries and aquaculture generally.

What does Covid-19 teach us about English contract law?

AbstractThis paper examines how English courts have responded to the contract problems generated by the Covid-19 pandemic and considers what this tells us about future contract law development. In relation to consumers, the case law on pandemic-affected contracts, though limited, indicates that traditional contract doctrine does not necessarily produce beneficial outcomes for consumers. This further diminishes the importance of the common law in the consumer contracting context. In the commercial sector, contracting parties were encouraged by government and other organisations to co-operate with one another and act in good faith during the crisis, but this has not influenced the courts applying contract law in the pandemic aftermath. The emerging case law suggests that contract law has retained its commitment to certainty, freedom of contract and sanctity of contract, notwithstanding the extraordinary circumstances around the outbreak and its unpredictable effects on contracts. The unalloyed application of formal contract law in the post-pandemic case law augments the position of relational norms as extra-contractual in English law, putting the further judicial development of relational contract principles in doubt. The paper concludes that despite the considerable social and economic upheaval caused by the pandemic, its impact on contract law development is likely to be minimal.

Industry price guarantees for publicly funded medicines: learning from Project NextGen for pandemics and beyond.

The affordability of publicly funded medicines has been a longstanding concern. In 2023, the Biden administration took several steps on this front, including incorporation of a price constraint in an agreement between the US Biomedical Advanced Research and Development Authority (BARDA) and Regeneron Pharmaceuticals, Inc. to develop a new COVID-19 monoclonal antibody. The agreement included a 'Most Favored Nation' (MFN) clause in which Regeneron agreed that the US commercial list price of certain products developed using BARDA funding would not exceed their retail price in comparable global markets. The Administration for Strategic Preparedness and Response (ASPR) included similar language in subsequent agreements, with a promise that this would become a new standard. Even beyond the preparedness context, government funders and purchasers might consider incorporating similar clauses in future contracts, especially given that the Regeneron agreement and its progeny have been praised as 'groundbreaking.' Yet a closer look reveals cause for skepticism. Regeneron's MFN clause includes several loopholes related to covered purchasers and reference countries, prices, and conditions. We describe agreement terms that can make the difference between legally meaningful price constraints and mere window dressing. Our critical analysis offers important lessons for future efforts to improve the affordability of medical technology developed with public funds.

Practitioner Perceptions of City-Subcontracted Community Organizing

Problem, research strategy, and findings Planning departments use nonprofit subcontractors to increase neighborhood community organizing. However, this is the first study to assess practitioner perceptions of this subcontracting arrangement and its effect on addressing or perpetuating racial inequities in neighborhood community organizing. We used 39 interviews in an exploratory study of Oklahoma City (OK) and a nonprofit that is contracted to do neighborhood organizing. Interviewees described how the organization improved some community organizing given its detailed approach to formalize neighborhood associations. At the same time, participants believed that the subcontracting relationship and focus on formalized neighborhood associations perpetuated existing disparities in community organizing given long-standing challenges of systemic racism. The study is limited in its focus on one example but provides implications for local municipalities that contract out community development services. Takeaway for practice Nonprofits can be important partners in expanding community organizing in neighborhoods. We offer recommendations for how planners can assess and work with subcontractor community organizing nonprofits in various stages of contracts, such as co-creating metrics for success and evaluating these outcomes with the subcontractor. Planning departments can then better understand how to modify future contracts to address racial equity disparities. Planners also should understand how these organizations may highlight ongoing ineffectiveness and challenges of working with diversifying publics and existing disparities in the planning process.

Driving Peru’s Road Infrastructure: An Analysis of Public–Private Partnerships, Challenges, and Critical Success Factors

Peru has experienced significant growth but faces challenges with its infrastructure. Despite economic and population growth, competitiveness has not risen at the same pace. The importance of proper roads for economic development and the lack of planning have led the country to confront an infrastructure deficit. This deficit affects connectivity and the quality of the road networks, thereby influencing competitiveness. To bridge this gap, the PPP modality had been used, but challenges were encountered, ranging from the execution of works to maintenance issues. This research study pursues three main objectives: to describe the current landscape of road infrastructure in Peru; to present the Peruvian PPP system and the experience gained through implemented concession contracts; and to identify the critical success factors of Peruvian concessions and propose an evaluation methodology for future contracts. To achieve this, an empirical study of 16 operational road PPPs and a literature review of the most relevant international experiences on success variables for such contracts were conducted. The primary contribution of this study lies in presenting the Peruvian experience and identifying key success factors for this type of contracts in Peru.

Suggesting Context Differences Influence the Impact of Nurses’ Psychological Contracts

Inconsistent findings regarding psychological contracts may be due to the variety of contexts studied. Sensemaking processes inform the psychological contract and may explain contextual differences. This study examines the psychological contract components of promises, fulfillment and breach, with negative affectivity, in relation to employee-level outcomes in two related but different contexts. Surveys were completed by 162 hospital nurses and 218 aged care nurses, in a situation where many potential contextual moderators were held relatively constant. Both fulfillment and breach were significant and predicted multiple outcomes in each context. Similar patterns of results for fulfillment and breach suggests there may simultaneously be two forms of discrepancy mechanism underpinning the impacts of the psychological contract: assessment of continuous discrepancy (fulfillment) and assessment of discontinuous discrepancy (breach). Negative affectivity appears to have prevented relationships, particularly between breach and stress, and should be included in future psychological contract research. The consistent relationships of fulfillment and breach with organizational and occupational commitment highlights the importance of career management. The main differences by context were the negative effects of breach and the lack of an effect for promises for aged care nurses, possibly due to prestige and other differences to be investigated in future research.

Pricing stock index futures with sentiments

The non-convergence issue between stock index futures and spot prices has become increasingly prominent, impacting market operations and challenging traditional pricing models. This paper develops a pricing model with sentiments for stock index futures and conducts an empirical investigation based on the actual trading data from 114 futures contracts of China's Shanghai and Shenzhen 300 stock index futures. The findings suggest that integrating the influence of sentiment in the stock index spot and futures markets can enhance the pricing efficiency of stock index futures. The study deepens the understanding of the role of sentiment in asset pricing and provides policy inspiration.

Broken Hill Proprietary Billiton report: Analysis Available Strategy to Hedging Risks by Using Futures Contracts, Foreign Exchange Futures

With the development of multinational companies, plenty of companies confront enough problems in financial management. This paper using real figure analysis method to conclude companies financial problems. After data analysis, we found Broken Hill Proprietary Billiton as one of the multinational company, it faced enough problems as commodity price risk, currency exchange rate risk and interest rate risk. In this case, hedging strategies with derivatives are used to minimize the risks of financial loss. Futures contract can be used to deal with commodity price risk and risks of currency exchange risk by locking in price and reduce uncertainty of market movements. Finally, contrast advantages and disadvantages for each strategy. After analysis of Broken Hill Proprietary Billiton, it could provide enough strategies to alleviate financial risks for multinational companies.

Perpetual Future Contracts in Centralized and Decentralized Exchanges: Mechanism and Traders' Behavior

Perpetual Future Contracts in Centralized and Decentralized Exchanges: Mechanism and Traders' Behavior

UnMoored: Taxing Regulated Futures Contracts in a Realized-Income Only World

UnMoored: Taxing Regulated Futures Contracts in a Realized-Income Only World

Research on Abnormal Volatility in The Japanese Government Bond Futures Markets– Policy based on yield curve control

Historically, central banks in the United States, the United Kingdom, Australia and Japan have implemented Yield Curve Control (hereinafter referred to as YCC), and Japan is currently the only country in the world that is still pushing ahead with YCC. However, given that the implementation and implementation of the YCC showed more defects than profits, on June 15, 2022, there was an unusual fluctuation in the Japanese government bond futures market, Japan’s 10-year government bond future contracts fell by 2.01 yen, touching the melting point in the plate, the largest single-day drop in 2013. This article introduces the basic framework of the yield rate curve and its way of buying bonds, then elaborates on the operation of the Central Bank of Japan to buy bonds in 2022, analyses the abnormal fluctuations in the Japanese government bond futures market in 2022 and identifies the contradictions and limitations of the government bond market as the root cause of the fluctuation.

Digital Contracts and Market Dynamics: Technological Innovation and Business Implications in the Enforcement of Futures Contracts Risks.

Digital Contracts and Market Dynamics: Technological Innovation and Business Implications in the Enforcement of Futures Contracts Risks.

Hedging performance analysis of energy markets: Evidence from copula quantile regression

AbstractThis study investigates hedging performance with respect to different market structures for energy‐related commodities, including West Texas Intermediate crude oil, Brent crude oil, Chinese crude oil, and Heating oil. Copula quantile regression functions and the generalized autoregressive conditionally heteroscedasticity model are combined to analyze the nonlinear impact of dependence and the heterogeneous impact of market structure changes on hedging performance. Results show that hedging performance presents nonlinearity and market structure changes have surprisingly strong heterogeneous effects on the quantile hedge ratio, where bearish and bullish have lower hedge ratios than normal markets, which is captured better by Clayton copula quantile regression. Additionally, the trend of hedging effectiveness over different market structures also shows an inverted U shape. After changing data frequency or the types of futures contracts, the conclusions remain the same. Our empirical findings imply that hedgers are supposed to adjust the hedging number of futures according to market structure changes to hedge price risk effectively.

Does history really repeat itself? An empirical investigation of recurring misconduct violations in public procurement

Public procurement of goods and services accounts for a significant portion of government budgets. Among contracts awarded annually by the United States federal government, a disproportionate amount of total spend is given to a relatively small number of contractor firms, many of whom have committed government contract misconduct in the past. We leverage insights from the contracting literature and organizational learning theory to understand the relationship between past contract misconduct and the likelihood of a subsequent contract misconduct violation, along with contextual factors that could influence this relationship. Using composite misconduct data captured from a longitudinal dataset of United States Department of Justice (DOJ) public procurement, a probit regression analysis reveals that firms with a history of government contract misconduct violations are increasingly likely to commit a subsequent violation, yet this relationship is not linear. Further empirical analysis reveals characteristics of contracting firms and purchasing relationships which moderate this phenomenon. Our findings contribute to the literature by providing empirical support regarding the relationship between past and future contract misconduct violations within public procurement relationships. We also offer several implications to practitioners and policymakers to support the identification and management of repeat contract misconduct violators.