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Modeling Contract Form: An Examination Of Cash Settled Futures

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  • Sanders, Dwight R.
  • Manfredo, Mark R.

Abstract

This research presents an intuitive interpretation and expression for pricing cash settled futures contracts. In particular, the choice of the averaging period for the underlying cash index is evaluated. For example, the averaging period for the Lean Hog futures contract is two days, whereas it is thirty days for the F ed funds contract. Does the choice of the averaging period make a difference? Under certain assumptions, the behavior of the futures price prior to entering the expiration or averaging interval is independent of the length of the interval for storable commodities, but it is not for non-storable commodities.

Suggested Citation

  • Sanders, Dwight R. & Manfredo, Mark R., 2002. "Modeling Contract Form: An Examination Of Cash Settled Futures," 2002 Conference, April 22-23, 2002, St. Louis, Missouri 19069, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    • Handle: RePEc:ags:ncrtwo:19069
    DOI: 10.22004/ag.econ.19069
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    References listed on IDEAS

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    1. Josué Martínez‐Garmendia & James L. Anderson, 1999. "Hedging performance of shrimp futures contracts with multiple deliverable grades," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 19(8), pages 957-990, December.
    2. Tashjian, Elizabeth, 1995. "Optimal futures contract design," The Quarterly Review of Economics and Finance, Elsevier, vol. 35(2), pages 153-162.
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