Use Of Futures Research Articles

FAİZ ORANI ÜZERİNE VADELİ İŞLEM SÖZLEŞMELERİNİN RİSKTEN KORUNMAK AMACIYLA KULLANIMI

One of the most successful and exciting innovations in the history of the futures markets has been the emergence of interest rate futures contracts. Today, the interest rate futures market has come to represent about one-half of the entire futures market. The reason behind this success is the fact that the individual, the businessperson and the banker, by using interest rate futures instruments, alone or in combination, each has the ability to control and hedge their interest rate risk and seek opportunity by restructuring the portfolio in the cash market. İn this study, the hedging with interest rate futures, especially by using short-term interest rate futures contracts, has been analyzed. It is also pointed out that Turkey, with a huge level of public borrowing, high level of secondary market trading volüme in the Biliş and Bonds Market and volatile interest rate structure, urgently needs this money market instrument, as the potential practical use of interest rate futures contracts for hedging purposes will offer a new alternative to improve the performance of the market participants in the financial market. I.

“How using derivative instruments and purposes affects performance of Islamic banks? Evidence from CAMELS approach”

The increase of the use of derivative instruments by Islamic banks for different purposes motivate us to conduct this study. This work has twice objective: firstly, to investigate the effect of each derivative instrument (forwards, futures, swaps or options) on the performance of Islamic banks, and secondly to examine the effect of each derivative purpose (hedging or trading) on the performance of Islamic banks.To reach this end, dynamic panel data econometrics with GMM system are conducted on 32 Islamic banks during the period from 2007 to 2017. The CAMELS approach is used to measure the performance of sample banks.Statistics on sample banks reveal that Islamic banks are substantial users of derivatives, prefer using derivatives for trading purpose than for hedging purpose, and have acceptable level of performance.The main results confirm that using options affects positively and moderately the performance of sample banks. In the same way, we find that swaps have positive and weak impact on the performance of sample banks. However, the results reveal that using forwards decrease the performance of sample banks. Finally, we find that futures have ambiguous and marginal effect on the performance of sample banks.As regards derivative purposes, results do not see which purpose mainly motivate the Islamic banks to invest in the derivatives market.As theoretical implication, we suggest for further studies to explore more the differences between using derivatives by Islamic banks for trading and hedging purpose.Finally, as practical implications, we recommend for managers of Islamic banks to enlarge their use of options and swaps, to supervise their use of forwards and to stop their use of futures.

Hedging and effectiveness of Indian currency futures market

PurposeThe purpose of this paper is to measure the effectiveness of the hedging with futures currency contracts. Measuring the effectiveness of hedging has become mandatory for Indian companies as the new Indian accounting standards, Ind-AS, specify that the effectiveness of hedges taken by the companies should be evaluated using quantitative methods but leaves it to the company to choose a method of evaluation.Design/methodology/approachThe paper compares three models for evaluating the effectiveness of hedge – ordinary least square (OLS), vector error correction model (VECM) and dynamic conditional correlation multivariate GARCH (DCC-MGARCH) model. The OLS and VECM are the static models, whereas DCC-MGARCH is a dynamic model.FindingsThe overall results of the study show that dynamic model (DCC-MGARCH) is a better model for calculating the hedge effectiveness as it outperforms OLS and VECM models.Practical implicationsThe new Indian accounting standards (Ind-AS) mandates the calculation of hedge effectiveness. The results of this study are useful for the treasurers in identifying appropriate method for evaluation of hedge effectiveness. Similarly, policymakers and auditors are benefitted as the study provides clarity on different methods of evaluation of hedging effectiveness.Originality/valueMany previous studies have evaluated the efficiency of the Indian currency futures market, but with rising importance of hedging in the Indian companies, Reserve Bank of India’s initiatives and encouragement for the use of futures for hedging the currency risk and now the mandatory accounting requirement for measuring hedging effectiveness, it has become more relevant to evaluate the effectiveness of hedge. To the authors’ best knowledge, this is one of the first few papers which evaluate the effectiveness of the currency future hedging.

Coal Mines Risk Modelling Using Energy Spread

The growing importance of the cost of electricity in coal mining, changes in the value chain in recent years and new commodity exchanges cause that mine operators independently or vertically integrated with power plants have possibility to buy and sell coal and electricity and create a specific spread. The study of risk based on the concept of a new indicator: an intrinsic spread. The intrinsic spread is calculated as a difference between the income from the sale of coal and the cost of purchasing the energy required for the coal production. This indicator shows a market risk in the coal mine in a better way, because except for income it includes a part of the cost of exploitation which can be hedged in the exchange market. Spread calculations were made on historical data and simulation modelling. Based on time series of coal and energy prices for various contracts and spot prices obtained from the EEX the impact of the type of contracts on the volatility of the intrinsic spread in subsequent periods measured by the standard deviation of returns has been analysed. It was found that hedge using futures helps to reduce the risk in the mine. Modelling of coal prices and electricity was carried out by conventional financial market econometric models. The best-fitting econometric models are multivariate models and models based on the copulas. The simulation results show that the use of futures contracts contributes little to reducing the intrinsic spread volatility. An econometric model with the technical and economic parameters of the mine typical for hard coal mine has been built. Changes in fixed and variable costs have been simulated based on triangular distributions. Parameters for simulation were estimated based on the economic data from the mines. Additionally, coal and energy prices were dependent on the market volatility. Based on the economic model and Monte Carlo simulation it has been found that the proposed method may be helpful in reducing the coal mine market risk.

The use of financial futures contracts for speculative purposes (Applied study in the Iraqi banking sector)

As a result of significant developments in the stock and foreign exchange markets over the past 25 years andthe risks involved, these developments have pushed towards the adoption of financial futures contracts toavoid these risks, usually used to sell and sell an existing one at an agreed price and at a fixed date in Thefuture, and the basis of this contract, is that the asset and quantity are agreed upon upon the signing of thecontract, with the payment of the price being executed and the agreed asset delivered in the future. In viewof the intellectual contemporary of this subject and the scientific study it deserves in depth, this study cameto address the topic in its intellectual, cognitive and applied dimensions and accordingly it has defined thetheoretical and practical framework. Financial futures contracts are one of the most important types offinancial engineering in which it gives the investor important opportunities to reduce the risks to which it isexposed by replacing a certain existing with another at a certain price and at a specific date or before aspecific date in the future. Most interested, clients and specialists agree that financial futures contracts areone of the best investment ideas that investment thought has achieved so far, and the research has concludeda set of conclusions and recommendations.

РИЗИК-МЕНЕДЖМЕНТ ВІТЧИЗНЯНИХ ТОВАРОВИРОБНИКІВ ІНСТРУМЕНТАМИ БІРЖОВОГО РИНКУ

Introduction. One of the peculiarities of Ukrainian agrarian market functioning is the growth of uncertainties, whose impact has increased significantly as a result of globalization processes. The constant change of external and internal factors causes risks, which become the main problem of management, as they determine the directions and production efficiency and agricultural products sale. Therefore, there is a need to apply progressive risk management methods and tools that are effective and efficient under current conditions. Companies use derivatives (trusted derivatives) to turn their cases around and limit uncertainty about future businesses for revitalization. Therefore, derivatives are actually invested in some economies and make their effectiveness for a higher level of valuable assets in the course of exchange trading. The purpose of the article is to substantiate scientifically theoretical positions and methodological approaches, to develop alternative risk management strategies through stock exchange instruments, namely types of derivatives – options. Results. The importance of theoretical bases formation of the risk essence is substantiated that can be faced by domestic producers. The ways of uncertainties occurrence, stages of their transformation are explained. The theoretical approach to risk management through the use of futures contracts is systematized. The historical stages of using derivatives development have been evaluated. The new approach to risk management is proposed through the use of the optional Collar strategy. Conclusions. Any business activity is unthinkable without risks in developed countries, so any manufacturer seeks to insure its risk, including through a fixed market. The terminal market allows for redistribution of risks among market participants, on which a particular derivative operates. 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, risk management, hedges, options, futures, derivatives, derivatives.

Use of English Futures, Will vs. Be Going to: A Corpus-Based Comparison Study

The present study investigates usage of English futures, will and be going to, by Korean EFL learners and American native English speakers. The examined usage data are extracted from the native speaker corpus, the Corpus of Contemporary American English (COCA), and two learner corpora, the Kyungpook National University (KNU) Student English Learner Corpus-Written (KSELC-W) and the KNU English Learner Corpus (KELC), and compared to determine interlanguage developmental patterns and usage similarities or differences between native speakers and nonnative speakers. In support of existing literature, the findings from the current study reveal that the American native English speakers of COCA significantly overuse both will and be going to in the spoken register compared to the combined written registers. Furthermore, the findings also indicate that although the writing samples of the learner corpora were written during formal EFL education settings, will and be going to usage by the Korean EFL learners closely resemble the usage data of the combined written-all registers of COCA. Finally, semantic analyses show that the advanced learners of KSELC-W use be going to quite correctly with the semantic senses in the present form. In contrast to the learners in Coates (1983), they use be going to to deliver the sense of epistemicity rather than the root intention senses.

A Comparative Analysis of the Hedging Effectiveness of Farmgate Milk Prices for New Zealand and United States Dairy Farmers

This study investigates the effectiveness of hedging and cross-hedging of fluid milk supplied by New Zealand farmers using derivatives offered by the NZX dairy futures market. The contribution of the paper is fourfold. Firstly, we have examined the use of other commodity futures to test the effectiveness of fluid milk hedging. Secondly, we have checked whether the other commodity futures provide lessons for the NZX dairy futures derivatives that are offered in New Zealand. Thirdly, we have compared the effectiveness of cross-hedging the farmgate milk price with the results reported in prior studies regarding hedging the farmgate milk price in the United States, while focusing on market factors that affect the effectiveness of the cross-hedge. For this we have used robust econometric testing techniques to evaluate the hedging and cross-hedging analysis. Our results show that the NZX dairy futures market suffers from illiquidity and displays relatively low correlation for cross-hedging purposes to the farmgate milk price. This implies that farmers either suffer from high volatility in their farmgate milk price or high basis risk in their cross-hedging. Our findings suggest that there is a need for a better price risk management tool for New Zealand dairy farmers.

Use of Selected Derivatives For Valuation of Mining Investment Projects

The article is devoted to the issue of valuation of mining investment projects (with the use of the Monte Carlo method) via selected derivatives. The purpose of using such instruments in the process of valuation is to secure the revenue of a mining company by guaranteeing raw material prices. According to the authors of the publication, the use of such instruments will help reduce the variability of obtained results and increase their reliability. The article consists of four parts. The introduction to the article specifies the purpose of the work. The second part of the article presents the foundations for the analysis, the purpose of which is to compare the obtained results ofthe investment value for three variants. The first one assumes the use of financial options to secure raw material prices, the second assumes the use of futures, and the last one stipulates that the company does not take action with respect to securing raw material prices. The third part presents the results of the study. Due to the availability of data, sample calculations were carried out on the basis of the financial information published by a copper manufacturer. The obtained results show that from the point of view of the value of the investment and the risk of negative investment value, the most advantageous method is to secure the prices of raw materials in the process of valuation of mining investment projects with the use of options. The last part of the work is a summary presenting the conclusions of the analysis. The article is accompanied by a list of literature used to prepare this study.

A public opinion survey of four future scenarios for Australia in 2050

Scenario planning and the use of alternative futures have been used successfully to assist organisations, communities and countries to move towards desired outcomes (Dator, 2009). In this study we used a unique combination of scenario planning and a national public opinion survey to explore preferred futures for Australia in 2050. The approach used four future scenarios for Australia in 2050 as the basis for an online national public opinion survey entitled Australia: Our Future, Your Voice. Scenario development was based on a review of a broad range of scenarios for Australia and globally. We then developed four synthesis scenarios based on two axes of individual versus community orientation, and national focus on GDP growth versus a focus on well-being more broadly defined. The scenarios were labelled: (1) Free Enterprise (FE); (2) Strong Individualism (SI); (3) Coordinated Action (CA); and (4) Community Well-being (CW). We created a website that described each of these scenarios and invited people to complete a survey after they had reviewed the scenarios.The survey engaged 2575 adults in two groups: (1) a targeted statistically representative national sample (n = 2083) and (2) a self-selected sample (n = 492). Results from both groups and across all demographic categories revealed that a majority of participants preferred the Community Well-being (CW) scenario. 73% (Representative) and 61% (Self Select) ranked this scenario as 1st or 2nd. We also asked which scenario Australia was headed toward. 32% of the Representative sample and 50% of the Self-Selected sample participants ranked the Free Enterprise (FE) scenario as the most likely future. CW was ranked least likely to be ‘where Australia is heading?’ The dissonance between the future Australians want and where they thought the country is headed has clear policy implications, which we discuss.This extension of scenario planning to include public opinion surveys is novel and this approach can be used to improve thinking, discussion, planning and policy about the future of Australia, as well as potentially other countries and regions.

Utilización de los futuros y opciones en el Mercado Financiero Ecuatoriano

La utilización de los futuros y opciones en el mercado financiero ecuatoriano en el que se refleja que existe un gran volumen de negociaciones con las herramientas denominadas; contratos a futuro y contratos de opciones, teniendo conocimiento de que estos se negocian en los principales entornos financieros internacionales donde se da comúnmente estos tipos de contratos, mientras que en nuestro país son comúnmente usados por los agricultores en sus operaciones en los se canalizan diariamente. Las inquietudes más relevantes de los empresarios en un sistema de negociación constante, sin una constante inflacionaria, permitiendo al inversionista seleccionar entre esas la más conveniente al momento de su inversión o la que más se ajuste a sus necesidades como inversor dentro del mercado financiero ecuatoriano, dependiendo sobre todo de su estructura de costos, expectativas de precios en el mercado financiero de nuestro país que lo aplica muy poco en comparación a otros mercados internacionales.

Can inflation expectations be measured using commodity futures prices?

This paper reexamines the use of US commodity futures price data to show that the US deflation of 1929–1932 was at best no more than partially anticipated by economic actors. By focusing on the expected real interest rate, previous studies provide some empirical support for explanations of the Great Depression that are not exclusively monetary in nature. However, these studies did not consider the context and the market microstructures from which the data was sourced. Our analysis suggests that it is more likely that agricultural commodity markets adjusted to deflationary expectations by the end of 1930. Evidence from commodities futures markets, such as the Chicago Board of Trade, therefore should not be used to critique the Keynesian challenge to the classical monetarist explanation of the Great Depression.

Mogućnosti primene hedžing strategija na inostranim robnim berzama

The aim of the paper is to determine the possibilities of implementing hedging strategies of Serbian agricultural producers on foreign commodity exchanges. Considerable fluctuations in prices of agricultural products in Serbia create the need for the use of futures in commodity exchanges in order to protect against unfavourable change in prices of agricultural products in the future period. Due to the fact that Serbia has not established the trading in commodity derivatives, Serbian producers are having to use developed commodity exchanges abroad. The paper analyses the possibilities of using the Chicago Mercantile Exchange in the USA and the MATIF commodity exchange in Paris, looking at two aspects of the activities. First, the correlation of corn prices on domestic and foreign commodity exchanges was investigated, given that it is the basic prerequisite for the application of successful hedging strategies and, secondly, legal requirements, primarily tax policies related to trade of futures contracts. This paper has found that there is a high correlation between the crops price in the foreign commodity markets and spot market in Serbia, which provides a solid basis for the implementation of hedging strategies for underlying assets in foreign commodity markets. However, it has been found that inadequate taxation policy is an aggravating factor for the implementation of hedging strategies.

Ocena zastosowania zagranicznych kontraktów terminowych w zarządzaniu ryzykiem cenowym na rynku pszenicy w Polsce

Ocena zastosowania zagranicznych kontraktów terminowych w zarządzaniu ryzykiem cenowym na rynku pszenicy w Polsce

Avaliação de eficiência de estratégias de hedge para o risco de preço do café do Brasil com o uso de contratos da BM&FBOVESPA

Brazil is the world’s largest coffee producer and exporter. However the new prices and volatility scenario since the 2008 crisis and the increasing competition of new players entry have expressed the need for use of market mechanisms for managing price risk. Among the alternatives illustrated are the futures markets, in particular the coffee futures contracts at BMFBOVESPA, Brazil. Our aim was to evaluate the efficiency of no hedge, simple (naïve) hedge, static and dynamic hedge calculated by GARCH-BEKK strategies in managing price risk in the leading Brazilian coffee producing regions. The efficiencies of static and dynamic hedging strategies were superior to the other, although the latter allows the calibration of intertemporal hedging rates, reducing operational costs. Also, the use of BMFBOVESPA coffee futures contracts for hedging might increase market liquidity, enabling various operational alternatives design.

The Volatility–Variability Hypotheses Testing and Hedging Effectiveness of Precious Metals for the Indonesian and Malaysian Capital Markets

This study evaluates the use of futures contracts for precious metals to hedge against stock market risks and their hedging effectiveness on the Indonesian Stock Exchange (IDX) and the Kuala Lumpur Stock Exchange (KLSE). This study found that gold was the most effective hedging instrument, since it produced the highest hedging effectiveness both on the IDX and the KLSE among the other precious metals. None of the hedged portfolios had a higher Sharpe’s ratio than the unhedged one on the IDX; however, all the hedged portfolios on the KLSE had a higher Sharpe’s ratio than the unhedged ones. Almost all the hedged portfolios could produce a higher Treynor’s ratio than the unhedged portfolios, both on the IDX and the KLSE. In general, this study concluded that studying some precious metals could reduce the investment risk, which was shown through the variance produced by the smaller portfolios, while gold can improve the risk-adjusted performance.

Impact of Futures Trading on Agricultural Commodity Market in India

On agricultural commodity futures, there is always been a doubt, expressed by different bodies and experts on the usefulness and suitability of futures contract in developing in the underlying agricultural commodity market, especially in an agricultural based economy like India. Here an attempt is made to revalidate the impact of futures trading on the agricultural commodity market. The daily price information in spot and futures market for a period of seven years ranging from 2007 to 2014 for five major agricultural commodities are estimated using VAR (Vector Auto Regression) and GARCH (1,1) to test the dynamic interrelationship among the variables. The empirical findings significantly show that comparative advantage of the futures market in disseminating information, leading to a significant price discovery and risk management, that can help to successfully develop the underlying commodity market in India.

Role of Commodity Futures on Indian Agricultural Commodity Market

Against the well-established fact that the usefulness and suitability of futures trading in developing the underlying agricultural commodity market, especially in an agriculture-based country like India are been questioned by various bodies. Through this work, it has been analyzing the role of futures trading on agricultural commodities. The effect of futures trading may be of two kinds, that is by way of hedging the price risk and the other way is through price discovery. The data collected for the analysis are the daily price history of spot and futures of five major agricultural commodities (Castor Seed, Chana, Chilli, Jeera, and Wheat) for a period of 7 years started from 2007 to 2014. Here it is revalidated the relationship between price movements of agricultural commodity futures and underlying spot prices by applying econometric analysis tools like Unit Root Test, and Engel-Granger test of Cointegration. The empirical findings proved that an existence of interrelationship between futures price movement and respective underlying spot prices in Indian agricultural commodity market.

Spicing Up a Portfolio with Commodity Futures: Still a Good Recipe?

In this article, the authors investigate whether employing individual commodity futures provides a superior optimized risk–return strategy relative to an equity portfolio, given the recent rise in correlations between commodity and equity markets. They first construct Markowitz mean–variance optimized portfolios of commodity and financial futures contracts within sample and then evaluate their subsequent out-of-sample performance using various time periods, targeted risk levels, and rebalancing frequencies. These portfolios generally outperform benchmark equity indexes, both in terms of return and risk levels. The portfolios also exhibit lower tail risk (reduced potential extreme losses) relative to the equity indexes. These findings support the use of commodity futures for both diversification and portfolio optimization purposes and illustrate appropriate application metrics. Moreover, the results are superior to using the commodity index approach emphasized by most previous studies. <b>TOPICS:</b>Commodities, futures and forward contracts, portfolio construction, performance measurement

Spicing Up a Portfolio with Commodity Futures: Still a Good Recipe?

We investigate whether employing individual commodity futures provides a superior optimized risk-return strategy relative to an equity portfolio, in spite of recently increasing correlations between commodity and equity markets. We first construct Markowitz mean-variance optimized portfolios of commodity and financial futures contracts within sample. We then evaluate their subsequent out-of-sample performance using various time periods, targeted risk levels, and rebalancing frequencies. These portfolios generally outperform benchmark equity indices, both in terms of return and risk levels. These portfolios also exhibit lower tail risk (reduced potential extreme losses) relative to the equity indices. These findings support the use of commodity futures for both diversification and portfolio optimization purposes and illustrate appropriate application metrics. Moreover, the results are superior to using the commodity index approach emphasized by most previous studies.