Use Of Futures Research Articles

Blue carbon development in China: realistic foundation, internal demands, and the construction of blue carbon market trading mode

Promoting the inclusion of blue carbon in market trading is crucial for recognizing its value and protecting the marine ecological environment. However, China currently does not have an internationally influential blue carbon market trading platform, which hampers the transmission of supply and demand in the blue carbon market and prevents the realization of blue carbon value. In this study, we analyze the feasibility and necessity of establishing a trading mode for the blue carbon market in China. The introduction of futures trading in the blue carbon market’s trading mode allows for the use of futures pricing methods and multiple financial instruments to address the challenges of income cost mismatch in blue carbon project development. The paper also discusses key strategies for the development of China’s blue carbon market, including the creation of a blue carbon trading methodology, the improvement of preservation and appreciation mechanisms, and the establishment of a unified trading platform. These strategies aim to provide intellectual support and decision-making reference for the construction of the market.

An innovative high-frequency statistical arbitrage in Chinese futures market

The primary use of futures is hedging risk. Traders in the spot market can hedge certain risks through the futures market. With the development of the futures market, the arbitrage transactions around futures have attracted increasingly attention. The aim of this paper is to establish an innovative and unique pairs trading framework, and use it to test the effectiveness of China's futures market. The framework for pairs trading is based on cointegration test, Kalman filter and Hurst index filtering. We use the data of 47 commodities with relatively good liquidity in the Chinese commodity futures market. We apply the representative index of China's commodity futures market, "Wenhua Commodity Index" as the benchmark, to evaluate the performance of the strategy and compare it with the benchmark model. This study found that, according to the pairs trading framework, after considering transaction costs, the cumulative return in the sample reached 81%, the cumulative return out of the sample was 21%. It is worth noting that the out-of-sample maximum drawdown achieved excellent results of no more than 1%. In the same period, trading the Wenhua Commodity Index with a "buy and hold" strategy achieved a gain of 31%, but with maximum drawdown reached 15%. The values of our paper are, first it proves that Chinese commodity futures market is not a weak-form efficient market, because technical analysis based on machine learning could obtain excess returns. Second, this research combines the theory and practice of statistical arbitrage, which also provides guiding significance for investment practice.

Potential Welfare Gains from Optimal Macro Hedging for Oil Exporters

This paper computes the welfare gains from optimal hedging with futures contracts for an oil-exporting country. Unlike previous studies, this paper derives the welfare gains under a more realistic futures hedging model. This is accomplished by considering basis risk and by relaxing the full-hedging assumption. Furthermore, this is the first paper to derive the welfare gains under optimal hedging strategies. We also incorporate the empirical relationship between spot and futures prices within our models, rather than the theoretical relationship which most studies employ. The models were developed under a dynamic stochastic optimization framework and the optimal consumption and value functions were found using the method of Endogenous Gridpoints. The results showed that the choice of the optimal hedging strategy employed led to a slight improvement in the country’s welfare gains relative to full hedging. We also found that the strategies with the highest welfare gains were the most effective at volatility reduction. Finally, this paper provides compelling evidence for the use of optimal macro futures hedging as an effective risk management tool for oil-exporting developing countries.

Exploring the use of futures, values, systems, and strategic thinking among engineering education research collaborators

AbstractBackgroundMultiple reports call for new ways of thinking to address challenges facing engineering education in the coming decades. Adopting these approaches first requires identifying and understanding existing ways of thinking among those engaging in engineering education research.Purpose/HypothesisThis study is motivated by the recently published Framework for Applying Ways of Thinking in Engineering Education Research (FAWTEER). The purpose is to determine if and how the four ways of thinking proposed under FAWTEER—futures, values, systems, and strategic—are practiced by engineering education research collaborators.Design/MethodSeven engineer‐social scientist collaborator pairs across heterogeneous research projects were interviewed in dyads. Data were analyzed using an inductive coding approach that was informed by the framework and literature.ResultsEmergent findings provided evidence of collaborators' use of futures, values, systems, and strategic thinking, but the interpretations and relevance of a particular way of thinking varied depending on the project context. Proposal calls, organizational structures and policies, intentionality, and culture were identified as determinants that could foster or hinder the implementation of different ways of thinking.ConclusionsWays of thinking may be taken for granted or partly ignored in research practices despite their potential influence on innovation. This study highlights how futures, values, systems, and strategic thinking are enacted in engineering education research and suggests the need to further explore connections between ways of thinking and cultures that exist at the departmental, institutional, and disciplinary levels.

The agricultural futures market in low development countries: a policy to respond to the volatility of prices?

This work discusses the possibility, or rather the effectiveness, of the use of agricultural futures as a means of hedging to minimize exposure to price risk. In particular, the analysis refers to "low-development countries" (LDCs), countries in which agricultural products play a prominent role and in which the process of market liberalization, which took place following the removal of state intervention, is determining an increasing exposure to price volatility. Knight's uncertainty is said to make both producers and speculators more risk averse, hence more conservative. In particular, when the futures price is well above the expected spot price (adjusted for the Knightian uncertainty), the optimal position for the producer is a total hedge of his production, while the optimal position for the speculator consists in not operating at all in the market. We can limit ourselves to observing that if a single producer and a single speculator operate in the market, the equilibria that can be reached are three: of complete exchange, of non-exchange and of partial exchange. The possibility of obtaining one of the three equilibria depends on the degree of risk aversion and the degree of Knightian uncertainty possessed by each of the two different subjects. Access to the capital market is a crucial element for the development of agriculture, both in the start-up phase and in the improvement phase. The search for new capital and new tools to facilitate market access requires a high degree of trust on the part of financial market operators, a trust that is often compromised by the low profitability of loans and the high risk associated with them. The exposure to risk of agricultural activities limits, in fact, the interest of traditional finance, reducing the availability of capital to the few remaining resources within the sector itself after the flight to more attractive alternative uses. Hence the need to introduce new financial and insurance techniques and services, such as to guarantee the agricultural sector the capital necessary for growth and, at the same time, attractive return opportunities for investors. Specifically, it is stated that one of the most profitable paths to follow in this regard is implementation within all EU member states of particular agricultural reforms that introduce risk management techniques in agriculture already successfully implemented by the U.S.A.1

Analysis of the hedging strategy for the huge loss of Sinopec Group

The use of crude oil futures for hedging is common for companies that use crude oil as a raw material. It helps companies to hedge against the risks associated with the volatility of crude oil prices and avoid major problems such as cash flow shortages. However, if hedging is abused, it can also have a significant impact on a company's profits. In late 2018, one of Sinopec Group's subsidiaries, United Petrochemical, mistakenly used financial derivatives to hedge, resulting in a plunge in net profit and share price for the entire group. This article analyses Sinopec Group's financial position for the three years 2017, 2018, and 2019, examines United Petrochemical's hedging strategy, and ultimately points out the reasons for and implications of its failure, with a view to providing lessons for the subsequent use of financial derivatives for hedging in related industries. The authors found that a subsidiary of Sinopec Group incurred large losses when international crude oil prices fell as it bought too many futures, causing Sinopec Group's profits to fall by more than 90% in the fourth quarter of 2018 and evaporating more than RMB 90 billion in market value in the two days the deal came to light.

THE INFLUENCE OF RISK MANAGEMENT THEORIES ON THE USE OF DERIVATIVES IN THE ELECTRIC POWER INDUSTRY

The work explores crucial decisions on the use of the specific types of derivatives in the electricity price risk management by the member companies of the European Federation of Energy Traders (EFET). The survey has been motivated by volatile fuel prices on international markets and significant losses incurred due to the exposure of companies to such volatility. These trends are the reason why increasing attention is devoted to risk management in the energy sector. The work tests the validity of the assumptions relating to the justification of the risk management function and its impact on corporate value increase. It has been investigated if these theories, as well as the specific corporate characteristics, such as indebtedness, size, liquidity and investment value, influence the use of forwards, futures, options or swaps as tools designed to offset the risk of energy price changes. The findings of univariant and multivariant analyses have shown that the companies using forwards differ from the companies not using them due to their greater indebtedness and higher value of new investments. It can thus be concluded that the companies which are more engaged in capital investment and in this use higher amounts of bonded capital tend to use forwards to a greater extent. On the other hand, it is interesting to note the fact that the size of a company does not play a major role in the choice of this tool, which confirms that forwards are a risk protection tool in the broadest use among big and small companies alike. Likewise, it is indicative that the size of a company has proved to be an influential factor in the choice of futures, swaps and options as tools created to offset the risks of energy price changes.

A multi-scale model with feature recognition for the use of energy futures price forecasting

Energy futures pricing is a critical endeavor in terms of the global economy’s trend, the sharp fluctuation of which increases the complexity of price series analysis. The majority of previous research has focused on model integration, data-driven factors and information optimization. It is, however, still not straightforward to provide a robust model for understanding the trend of the energy futures prices due to the multifaceted nature of financial markets. To provide feasibility for energy futures prediction, a multiscale model that integrates the decomposition-ensemble approach and the subcomponents clustering method is proposed, which overcomes the fluctuation position of the energy futures price. The subcomponents clustering method is used to obtain a number of subseries with different frequencies after decomposing the energy futures price series into several subcomponents. The linear model is then used to forecast the trend component, while the machine learning method predicts the nonlinearity at the same time. An examination of the multiscale model yields a plausible interpretation. The discussion and analysis evaluate forecasting dependability and feasibility, demonstrating that the developed multiscale model reduces crude oil futures price forecasting by up to 6.11% and natural gas futures price forecasting by up to 2.05%, respectively.

Defending global oil price security: Based on the perspective of uncertainty risk

This study uses the time-varying parameter/stochastic volatility vector autoregression (TVP-SV-VAR) model to explore the impact of uncertainty risk on oil prices. Economic policy uncertainty and geopolitical risk were used as proxy variables for economic and political uncertainty risk. The study results indicate that oil price is driven jointly by two uncertain risk factors, where the impact of economic policy uncertainty is significantly greater than that of geopolitical risks. However, with the use of oil futures hedging tools and the improvement of the oil market mechanism, the relationship between oil supply and demand is relatively stable, and their impact on oil prices is gradually weakening. We also investigated the influence of severe political and economic uncertainty event shocks on oil price. The differences in oil prices due to economic or political events are mainly reflected through oil demand channels. The global financial crisis and 9/11 terrorist attacks had higher negative impacts on oil demand and prices than other events. This study discusses the impact of uncertain risk on oil prices and can aid market participants and government decision-makers in accurately predicting the trend of oil price and improving risk response abilities to cope with oil emergencies.

Deriving equity risk premium using dividend futures

In this paper I present a simple stock price decomposition model using the dividend discount model and dividend futures. The main contribution of this paper is the use of dividend futures which represent the risk-adjusted expectations of future dividends. This allows for the calculation of the implied equity risk premium and the decomposition of stock price movements into individual components. Due to the use of daily market data, this method can take into account the structural changes associated with falling interest rates and the Covid-19 pandemic. I empirically show the risk premium development of the S&P 500 Index and Euro Stoxx 50 Index in the last decade.

Terminkontrakte im ESG-Portfolio

Climate protection and sustainability are also becoming increasingly important for financial market participants. When providing investment advice and portfolio management, it is mandatory to determine the customer's sustainability preferences. Product manufacturers are also adapting their financial products to the recently enacted EU regulations, carry out product classifications and have to disclose how sustainable their products are. The rules are tailor-made for investments in securities, especially bonds and equities. Derivatives have hardly been dealt with, although the derivatives markets offer improved and expanded options for transforming risks, separating individual risk components and thus tradability and improved control options for financial risks. This paper examines the effects of the use of futures contracts in financial products on their sustainability (product categorization).

Impacts of El Niño southern oscillation on hedge strategies for Brazilian corn and soybean futures contracts

Abstract: Climate influences the variations in soybean and corn prices; thus, we assessed the relationship between the El Niño Southern Oscillation (ENSO) with soybean-to-corn price ratio to determine potential impacts on price risk management. The commercial areas of Passo Fundo (RS), Cascavel (PR), Maringá (PR), Uberlândia (Triângulo Mineiro), and Sorriso (MT) covered in the study were chosen according to the MAPA edaphoclimatic classification. To estimate the effectiveness and optimal hedge ratio, the static and generalized model by Myers and Thompson (1989), adapted by Lien and Tse (2000), was used to include the cointegration approach in the analysis. The innovation of this study is the inclusion of the climate variable ENSO in this hedging approach. The findings showed that ENSO, especially La Niña, affects soybean-to-corn price ratio and hedge strategies. These results highlight the need to expand the use of futures contracts to reduce the price risk during the occurrence of ENSO events.

The Term Structure of Currency Futures' Risk Premia

AbstractThe use of futures instead of forwards exchange contracts completes the maturity spectrum of the correlation between spot yields and the premium. We find that the forward premium puzzle appears to be a precrisis phenomenon and is only observed for maturities longer than about 1 month. Differences in the exposure to risk help to explain cross‐sectional spreads in currency excess returns. However, this only applies for medium and longer maturities. Considering that most studies that test the validity of a risk‐based approach to currency excess returns focus on short maturity securities, this explains why this approach is so often rejected.

Measuring volatility spillovers and asymmetric responses of Agri commodity prices: evidence from spices and rubber futures in India

PurposeThis paper aims to investigate price responses and volatility spillovers between commodity spot and futures markets. The study ultimately seeks the evidence-based claims on the efficiency of the long run and short run horizontal price transmissions from futures markets to spot markets.Design/methodology/approachThis study used the most recent daily price series of pepper, cardamom and rubber, during the period 2004–2019, use “cointegration-ECM-GARCH framework” and verify the persisting validity of the “expectancy theory” of commodity futures pricing.FindingsThe results offer overwhelming evidence of futures market dominance in the price discoveries and volatility spillovers in spot markets. However, this paper finds asymmetric responses between cash and futures prices across markets. The hedging efficiency of futures contracts is commodities specific’ where spices futures are more efficient than the rubber futures.Practical implicationsThe study passes on vital information to the producers and traders of spices and rubber who have a potential interest in the use of futures contracts to make profits from arbitrage between futures and cash markets.Originality/valueThe paper is unique in terms of understanding asymmetric price linkages in markets for plantation crops.

Price discovery and pairs trading potentials: the case of metals markets

Purpose This study aims to validate the “expectancy theory” of asset pricing and explores the price discovery process in metals futures markets. Design/methodology/approach This paper adopts the Johansen cointegration and vector error correction model approach to investigate the potentials of Pairs trading in the metals market during the period 2008–2019. Findings The results find the price movements in metal markets are not random walk and the current “futures” prices are the reasonable estimate of the “spot” metal prices in future. This study does not notice any significant differences in the price efficiency across metals markets, which signal the effects of limited idiosyncratic forces in price transmission. Practical implications The research suggests the covert use of metal futures to make gains from arbitrage trading. Originality/value The study emphasizes the potential of “pair trading” in commodity market context that is seldom discussed in academic papers.

УДОСКОНАЛЕННЯ ІНФРАСТРУКТУРИ РИНКУ Ф’ЮЧЕРСНИХ КОНТРАКТІВ НА СІЛЬ-СЬКОГОСПОДАРСЬКУ ПРОДУКЦІЮ ДЛЯ УПРАВЛІННЯ ФІНАНСОВИМИ РИЗИКАМИ

The article examines how the infrastructure of the futures market is being improved for agricultural products. It is proved that the regulation of the exchange market of agricultural products should include protection of the integrity of market prices, as the damage caused to the market is not limited to the loss of its direct participants, to maintain confidence, and confidence in the market for risk management makes it impossible to circumvent tax restrictions. It is determined that the components of an efficient infrastructure function harmoniously and smoothly. It is substantiated that an important problem of the exchange market infrastructure is the limited accredited elevators, which prevents the use of futures on agricultural products as a hedging tool. It is outlined that the infrastructure of the futures market for agricultural products largely depends on the infrastructure of the grain market as a whole, which is currently in poor condition. The current state of infrastructure and logistics of the grain market is highlighted and substantiated that a qualitative change in the current situation requires large-scale moderni-zation, reconstruction and construction of new facilities at all stages of agricultural production. The purpose of this study is to improve the infrastructure of the market of futures contracts for agricultural products to manage financial risks and prospects for their further development. Methods. The basis of the study is the current legal framework, legislation, regulations, instruct-tional materials, textbooks, special literature. The article used general scientific methods of analysis and synthesis, specific methods of analysis: grouping, comparison, systematic and others. Results. Based on the study, it is proved that the infrastructure of the futures market for agricul-tural products is a set of organizations and institutions that help this market to work effectively and should be inextricably linked with the commodity exchange. It is also studied and determined that the market infrastructure, as a system of institutions and organizations (banks, exchanges, fairs, insurance companies, consulting and information and marketing firms, etc.), providing free movement of goods and services in the market. Keywords: market infrastructure, futures, futures contracts, financial risks, financial risk management.

Dynamic model of the software development market based on the assignment problem on pain points

The authors propose the formulation of a discrete dynamic model of the software developmentmarket (SM) based on the assignment problem (AP) on pain points (PP), which can also be obtained according to the scheme used in (Vasin, Grigorieva, Lesik, 2018), if we abandon the integer number of elements of the assignment matrix. However, there are also features: equilibrium prices can be calculated directly, and therefore a variational formulation of the internal problem of determining equilibrium prices based on Debreu's theorem (Debreu, 1954) is not required. The functions of changing the phase coordinates can be taken convex, for example, the norm of the difference in the square, and do not take into account the constant costs for each control switching. Such a statement is also given in this paper. If we have a dynamic expansion of the AP on PP, it is possible to determine the additional profit of the transport system through the use of futures. Formulas for the components of the gradient of the indicator are obtained. This allows us to organize a gradient method for solving a dynamic AP on PP. The authors also demonstrate an approximate algorithm and a model example of its use for solving the dynamic expansion of the AP on PP, based on solving the current static problem with an increment of those elements of the efficiency matrix that coincide with the corresponding elements of the optimal assignment matrix, if we abandon the integer nature of the assignment matrix. This is equivalent to randomization of the assignment problem, when the corresponding assignments are implemented with certain probabilities, which are used to determine the error of the approximate algorithm by comparing it with the exact solution obtained with the gradient method for sufficiently large values of penalty constants.

CURRENT TRENDS IN RISK MANAGEMENT OF AGRICULTURAL PRODUCTS

Introduction. Agricultural producers regularly face price and production risks. Moreover, the strengthening of global free trade and changes in domestic agricultural policy increase the likelihood of adverse events. As price volatility increases revenue volatility, manufacturers are realizing the importance of risk management as a component of their management strategies. One way to reduce these risks is to use commodity futures and other derivatives. Similar to car insurance, hedging potential costs as a result of a car accident, farmers can use commodity futures markets to hedge the potential costs associated with commodity price volatility. Just as if the profit from a car insurance claim cannot exceed the value of the total amount of insurance premiums, the profit from hedging may not cover the cost of hedging. The purpose of the article is to scientifically substantiate theoretical positions and methodological approaches and to develop alternative risk management strategies through stock exchange instruments, namely, its derivatives – futures and options. Results. The importance of theoretical bases formation of risks that can be faced by domestic producers is substantiated. The ways uncertainties occur, stages of their transformation, are explained. The theoretical approach to risk management through the use of futures contracts is systematized. The historical stages of development of using derivatives have been evaluated. Conclusions. In developed countries, any business activity is unthinkable without risks, so any manufacturer seeks to ensure its risk, including a fixed market. The very time market, on which a particular derivative operates, allows redistributing risks among market participants. The advantage of derivatives is the leverage that allows participants to operate large amounts of risk management funds, including hedging their own products. Keywords: risk, risk management, hedges, options, futures, derivatives.

ФИНАНСОВЫЕ ИНСТРУМЕНТЫ ХЕДЖИРОВАНИЯ НА РОССИЙСКОМ РЫНКЕ ЦЕННЫХ БУМАГ

The article discusses the Russian stock market and characteristics of futures contracts, that traded on it. Article includes analysis of the use of futures contracts for the purpose of hedging

Do the crude oil futures of the Shanghai International Energy Exchange improve asset allocation of Chinese petrochemical-related stocks?

The Shanghai International Energy Exchange (INE) facilitates both local and international investment in Chinese petrochemical-related stocks through local crude oil futures. This study investigates whether the Chinese emerging market can better aid investors' risk hedging and asset allocation compared to two major international developed markets–the Brent and West Texas Intermediate (WTI) crude oil futures markets—and examines the pairwise risk hedging effects and multi-asset allocation performance of INE and petrochemical-related stocks. The results show that INE has higher hedge effectiveness than Brent and WTI under pairwise hedging. Further, in multi-asset allocation, the portfolios containing INE outperform other portfolios. Overall, INE results in a better diversification effect and volatility reduction than the use of WTI crude oil futures to construct multi-asset allocation with Chinese petrochemical-related stocks. However, INE performance is inferior to Brent's in terms of constructing portfolios with oil or energy stocks. Finally, our results are robust to the five factors proposed by Fama and French (2015) in asset pricing.