Using High, Low, Open and Closing Prices to Estimate the Effects of Cash Settlement on Futures Prices PDF Download
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Author: Leo H. Chan Publisher: ISBN: Category : Languages : en Pages : 21
Book Description
Prior to 1986, any opening position on feeder cattle futures contract must be settled with physical delivery after the last trading day. Due to dwindling commercial interests, Chicago Mercantile Exchange (CME) subsequently replaced the system with the cash settlement method. It was argued that cash settlement would help reduces the futures price's volatility. In this paper, we adopted stochastic volatility models to investigate this conjecture. The models allow for time varying volatility. Using 4 estimators based on mixtures of high, low, open and close prices, we found all estimators conclude that the volatility of the feeder cattle futures price decreased after switching from physical delivery to cash settlement. The change in the contract specification therefore enhances price discovery and risk management functions of the futures market. Concerning the higher moments of the volatility, different conclusions were derived. Range data, the Parkinson and the Rogers-Satchell estimators all indicate that cash settlement led to a reduction in the volatility of volatility.
Author: Leo H. Chan Publisher: ISBN: Category : Languages : en Pages : 21
Book Description
Prior to 1986, any opening position on feeder cattle futures contract must be settled with physical delivery after the last trading day. Due to dwindling commercial interests, Chicago Mercantile Exchange (CME) subsequently replaced the system with the cash settlement method. It was argued that cash settlement would help reduces the futures price's volatility. In this paper, we adopted stochastic volatility models to investigate this conjecture. The models allow for time varying volatility. Using 4 estimators based on mixtures of high, low, open and close prices, we found all estimators conclude that the volatility of the feeder cattle futures price decreased after switching from physical delivery to cash settlement. The change in the contract specification therefore enhances price discovery and risk management functions of the futures market. Concerning the higher moments of the volatility, different conclusions were derived. Range data, the Parkinson and the Rogers-Satchell estimators all indicate that cash settlement led to a reduction in the volatility of volatility.
Author: Leo H. Chan Publisher: ISBN: Category : Languages : en Pages : 23
Book Description
Prior to 1986, any opening position on feeder cattle futures contract must be settled with physical delivery after the last trading day. Due to dwindling commercial interests, Chicago Mercantile Exchange (CME) subsequently replaced the system with the cash settlement method. In December 1996 the CME abandoned the live hog futures contract and replaced it with the lean hog futures contract. While the former contract requires physical delivery, the later is settled in cash. It was argued that cash settlement would help improve the performance of these contracts. One of the main functions of the futures markets is the price discovery function. In this paper, we examine how cash settlement affects the ability of the futures market to predict future spot prices. Adopting the Geweke feedback measure, we find that the feeder cattle futures contract improves its price discovery function after the cash settlement was adopted in August 1986. Moreover, spot and futures markets become more integrated thereafter. We also consider the case in which the cash settled lean hog futures contract replaced the physical delivery settled live hog futures contract in December 1996. Herein the conclusion is drastically different. After cash settlement was adopted, the futures market is less effective in price discovery. Further, spot and futures markets are more segmented. We suspect other contract uncertainties, including the change in weighing scheme, gives rise to the undesirable results.
Author: Leo H. Chan Publisher: ISBN: Category : Languages : en Pages :
Book Description
The Chicago Mercantile Exchange (CME) abandoned the live hog futures contract (physical delivery) in December 1996 and replaced it with the lean hog futures contract (cash settlement), with the intention of improving the effectiveness of the contract as a risk management tool. This paper applies implied volatility derived from options on live/lean hog futures contracts to examine the possible effects of cash settlement on futures price volatility. Using different data windows and applying different model specifications, it is found that the hog futures price has become less volatile, thus improving the risk management function of the futures contract, since the adoption of cash settlement.
Author: Ami R. Bellows Publisher: Nova Publishers ISBN: 9781594542459 Category : Business & Economics Languages : en Pages : 214
Book Description
This new book covers both theoretical and applied agricultural economics research. Its scope also includes a wide range of topics related to agricultural economics. Topic areas include, for example: production economics and farm management, agricultural policy, agricultural environmental issues, regional planning and rural development, factor markets, supply and demand analysis, marketing of agricultural and food products, international trade and development, and methodology. It also examines the linkages between and among financial institutions, the macroeconomy, world markets, government programs, farms, agribusinesses, food marketing, and the environment.
Author: Dunhong Jin Publisher: International Monetary Fund ISBN: 1513519492 Category : Business & Economics Languages : en Pages : 46
Book Description
How to prevent runs on open-end mutual funds? In recent years, markets have observed an innovation that changed the way open-end funds are priced. Alternative pricing rules (known as swing pricing) adjust funds’ net asset values to pass on funds’ trading costs to transacting shareholders. Using unique data on investor transactions in U.K. corporate bond funds, we show that swing pricing eliminates the first-mover advantage arising from the traditional pricing rule and significantly reduces redemptions during stress periods. The positive impact of alternative pricing rules on fund flows reverses in calm periods when costs associated with higher tracking error dominate the pricing effect.
Author: Piet Sercu Publisher: Princeton University Press ISBN: 1400833124 Category : Business & Economics Languages : en Pages : 833
Book Description
International Finance presents the corporate uses of international financial markets to upper undergraduate and graduate students of business finance and financial economics. Combining practical knowledge, up-to-date theories, and real-world applications, this textbook explores issues of valuation, funding, and risk management. International Finance shows how theoretical applications can be brought into managerial practice. The text includes an extensive introduction followed by three main sections: currency markets; exchange risk, exposure, and risk management; and long-term international funding and direct investment. Each section begins with a short case study, and each of the sections' chapters concludes with a CFO summary, examining how a hypothetical chief financial officer might apply topics to a managerial setting. The book also contains end-of-chapter questions to help students grasp the material presented. Focusing on international markets and multinational corporate finance, International Finance is the go-to resource for students seeking a complete understanding of the field. Rigorous focus on international financial markets and corporate finance concepts An up-to-date and practice-oriented approach Strong real-world examples and applications Comprehensive look at valuation, funding, and risk management Introductory case studies and "CFO summaries," and end-of-chapter quiz questions Solutions to the quiz questions are available online
Author: Leo H. Chan
Author: Leo H. Chan
Author: Leo H. Chan
Author: Leo H. Chan
Author: Ami R. Bellows
Author: Lazaros Iliadis
Author: Hans R. Stoll
Author: 
Author: Dunhong Jin
Author: 
Author: Piet Sercu