In many studies the assumption is made that traders only encounter one type of price risk. In reality, however, traders are exposed to multiple price risks, and often have several relevant derivative instruments available with which to hedge price uncertainty. In this study, commodity, foreign exchange, and freight futures contracts are analyzed for their effectiveness in reducing price uncerta...

The paper aims to investigate the real e ects of nancialization of commodities markets. We document that nancialization took a form of investment in short-term futures contracts that require regular replacement. Thus, nancialization exposes the nancial market to the stream of demand shocks, associated with replacement activity. If arbitrage is limited by risk aversion of nancial traders, the sh...

This publication primarily presents economic research aimed at improving policymaking by the Federal Reserve System and other governmental authorities. Articles may be reprinted if the source is credited and the Research Department is provided with copies of reprints. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the ...

Various authors claim to have found evidence of stochastic long memory behavior in futures’ contract returns using the Hurst statistic. This paper reexamines futures’ returns for evidence of persistent behavior using a biased-corrected version of the Hurst statistic and an estimate of the long-memory parameter based on the process spectrum. Results based on these new methods provide no evidence...

Hedging interest rate exposures using interest rate futures contracts requires some knowledge of the volatility function of the interest rates. Use of historical data as well as interest rate options like caps and swaptions to estimate this volatility function have been proposed in the literature. In this paper the interest rate futures price is modelled within an arbitrage-free framework for a...

The aim of this paper is to discuss the hedging techniques that a company based in an emerging market country can use to hedge the risk associated with jet fuel or kerosene. The company can be an airline company or a market intermediary offering contracts on this important commodity. An empirical analysis reveals two main directions for minimum risk hedging: one is to cross-hedge directly the c...

Prediction Markets, sometimes referred to as “information markets,” “idea futures” or “event futures”, are markets where participants trade contracts whose payoffs are tied to a future event, thereby yielding prices that can be interpreted as marketaggregated forecasts. This article summarizes the recent literature on prediction markets, highlighting both theoretical contributions that emphasiz...

Research on the Heath-Jarrow-Morton (1992) term structure models so far has focused on the class having time-deterministic instantaneous forward rate volatility. In this case the forward rate process is Markovian, even if the spot rate process is not. However, this Markovian feature can only be used under the historical measure, involving two unsatisfactory assumptions: one involving the market...

This paper presents non-parametric estimates of spectral risk measures applied to long and short positions in 5 prominent equity futures contracts. It also compares these to estimates of two popular alternative measures, the Value-at-Risk (VaR) and Expected Shortfall (ES). The spectral risk measures are conditioned on the coefficient of absolute risk aversion, and the latter two are conditioned...