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A review on pricing of currency futures in Indian foreign exchange market

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  • Ankita Srivastava

Abstract

This paper attempts to study theoretically the pricing of currency futures and the scope of the available models for pricing. The purpose of this study is to investigate the available literature on pricing of currency futures and understand the empirical analysis employed by various researchers. The thorough review of literature and the study of futures data on National Stock Exchange conclude that in developing countries like India, Athens, etc. the markets are inefficient and thus the future or forward prices become equal to spot prices at the time of expiry i.e., convergence is there. Though this study has not tested the convergence empirically but seeing the pattern of trading and the study on market efficiency in India supports the dependency of two on each other i.e., there is a long run stable relationship between foreign currency spot and futures market.

Suggested Citation

  • Ankita Srivastava, 2017. "A review on pricing of currency futures in Indian foreign exchange market," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 13(2), pages 182-189.
    • Handle: RePEc:ids:ijecbr:v:13:y:2017:i:2:p:182-189
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    References listed on IDEAS

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    1. Marina Abdul Razak & Obiyathulla Ismath Bacha, 2009. "Pricing efficiency of the 3-month KLIBOR futures contracts: an empirical analysis," Applied Financial Economics, Taylor & Francis Journals, vol. 19(6), pages 445-462.
    2. Lin Shinn-Juh & Stevenson Maxwell, 2001. "Wavelet Analysis of the Cost-of-Carry Model," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 5(1), pages 1-17, April.
    3. Avraham Kamara, 1982. "Issues in futures markets: A survey," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 2(3), pages 261-294, September.
    4. Joshua V. Rosenberg & Leah G. Traub, 2006. "Price discovery in the foreign currency futures and spot market," Staff Reports 262, Federal Reserve Bank of New York.
    5. Rendleman, Richard J, Jr & Carabini, Christopher E, 1979. "The Efficiency of the Treasury Bill Futures Market," Journal of Finance, American Finance Association, vol. 34(4), pages 895-914, September.
    6. Manolis Kavussanos & Nikos Nomikos, 2003. "Price Discovery, Causality and Forecasting in the Freight Futures Market," Review of Derivatives Research, Springer, vol. 6(3), pages 203-230, October.
    7. Lucio Sarno & Giorgio Valente, 2000. "The cost of carry model and regime shifts in stock index futures markets: An empirical investigation," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 20(7), pages 603-624, August.
    8. Fama, Eugene F, 1991. "Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-1617, December.
    9. Lee R. Thomas III, 1986. "Random walk profits in currency futures trading," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 6(1), pages 109-125, March.
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